The Pound Sterling (GBP) gains against its major peers, except antipodeans, on Wednesday. The British currency trades higher ahead of the United Kingdom (UK) monthly Gross Domestic Product (GDP) and factory data, which will be released on Thursday.
The UK Office for National Statistics (ONS) is expected to show that the economy expanded 0.1% in November. Meanwhile, month-on-month (MoM) Manufacturing Production is estimated to have grown steadily by 0.5%, with Industrial Production remaining broadly flat.
Investors will pay close attention to the UK GDP growth data to get cues on the current state of the economy. The UK GDP declined by 0.1% in both September and October after remaining flat in August.
The data will also drive market expectations for the Bank of England’s (BoE) monetary policy outlook. In the December policy meeting, the BoE guided that monetary policy will remain on a gradual downward path.
During European trading hours, BoE policymaker Alan Taylor said in a summit in Singapore that he expects interest rates to fall to their neutral levels soon, citing that price pressures could return to target by mid of 2026.
Daily digest market movers: Global central bank chiefs back Fed’s Powell
- The Pound Sterling trades 0.2% higher to near 1.3445 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair rises amid Sterling’s outperformance, while the US Dollar ticks lower.
- As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges down to near 99.10, but is still close to its monthly high near 99.26.
- The US Dollar gained sharply on Tuesday after the release of the US Consumer Price Index (CPI) data for December. The CPI report showed that both headline and core inflation remained steady at 2.7% and 2.6% year-on-year (YoY), respectively, firming expectations that the Federal Reserve (Fed) will not cut interest rates in its policy meeting later this month.
- However, US President Donald continued to increase the pressure on Fed Chair Jerome Powell to cut interest rates further, while praising steady inflation figures. “We have very low inflation. That would give ’too late Powell’ the chance to give us a nice beautiful big rate cut,” Trump said, according to a Reuters report.
- For more cues on inflation, investors will focus on the United States (US) Producer Price Index (PPI) data for October and November, which will be published at 13:30 GMT.
- Meanwhile, chiefs of global central banks have shown support towards Fed Chair Jerome Powell over his criminal charges, which he called a “pretext” for refraining from follow the president’s preferences. Chiefs from the European Central Bank (ECB), the BoE, and nine other central banks said collectively that “independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve”, and “we stand in full solidarity with the Fed System and its Chair Jerome H. Powell”.
Technical Analysis: GBP/USD wobbles near 20-day EMA
GBP/USD trades at 1.3437 as of writing. The 20-day Exponential Moving Average has stalled around 1.3439, with price testing this dynamic cap. A close above the average would improve near-term traction. The RSI at 52 (neutral) edges higher, but still reflects balanced momentum.
Measured from the 1.3780 high to the 1.3006 low, the 50% Fibonacci retracement at 1.3393 acts as resistance on rebounds, while the 61.8% retracement at 1.3485 caps the upside. A close above the latter would signal the bearish trend is fading and could extend the recovery, while failure there would keep the pair range-bound.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Source: https://www.fxstreet.com/news/pound-sterling-trades-higher-ahead-of-key-uk-gdp-data-202601140906
