The GBP/USD pair took a hit on Thursday, dropping below 1.2400 for the first time since April. Despite it being only the start of the year, the Cable is already showing signs of ending the month on a negative note. US PMI figures scheduled for Friday will wrap up the week’s economic calendar.
The decline in GBP/USD on Thursday saw the pair lose over one percent as it broke through the 1.2400 level, marking almost ten months since it has been at this level. Market volumes are currently thin due to the New Year holiday, but the prevailing sentiment remains risk-off. Economic data from the UK side is minimal for the first week of the year, with US PMI figures likely to take center stage on Friday. UK Money Supply and Mortgage Approvals data is also expected, but their impact on the market is projected to be minimal.
Analysts expect the US ISM Manufacturing PMI for December to remain steady at a contractionary level of 48.4, in line with the preliminary reading. Despite a slight monthly increase, US businesses remain cautious about activity in the first quarter of 2025 as domestic demand cools down. Cable traders will be closely monitoring the interest rate differentials in the first half of the year, as the Federal Reserve is expected to implement fewer rate cuts than initially anticipated.
The GBP/USD price forecast indicates a potential further decline towards the 1.2300 level after dropping below 1.2400. The 50-day EMA is on a bearish trajectory below 1.2700, adding downside pressure. The pair is also below the 200-day EMA, suggesting a bearish trend in the near term.
The Pound Sterling, the official currency of the United Kingdom, holds the title of the oldest currency in the world, dating back to 886 AD. It is also the fourth most traded currency globally, accounting for 12% of FX transactions totaling $630 billion daily. The key trading pairs for the Pound are GBP/USD (Cable), GBP/JPY (Dragon), and EUR/GBP.
The value of the Pound Sterling is heavily influenced by the monetary policy decisions of the Bank of England (BoE), aimed at maintaining price stability through a steady inflation rate around 2%. Interest rate adjustments are a primary tool used by the BoE to manage inflation levels. When inflation is high, raising interest rates can attract global investors to the UK, bolstering the value of GBP. Conversely, lowering rates can stimulate economic growth if inflation is too low.
Economic indicators such as GDP, PMIs, and employment data play a crucial role in determining the health of the UK economy and subsequently impacting the value of the Pound Sterling. A strong economy often leads to increased foreign investment and the potential for higher interest rates, strengthening GBP. On the other hand, weak economic data can lead to a depreciation of the Pound.
The Trade Balance is another significant factor affecting the value of the Pound Sterling. A positive trade balance, where exports exceed imports, can bolster a country’s currency by increasing demand for its goods. Conversely, a negative trade balance can weaken a currency. Overall, a combination of monetary policy decisions, economic indicators, and trade balance data all contribute to the movement of the Pound Sterling in the forex market.
