GBP/USD is rising for the second day in a row on Tuesday and is expected to build on the previous day’s rebound from the 1.3390 area, a three-week low. Spot prices are currently trading around 1.3475, up almost 0.10% on the day.
The US dollar (USD) is struggling to attract significant buyers amid growing concerns about the independence of the US Federal Reserve (Fed) and is proving to be a key factor acting as a tailwind for the GBP/USD pair. In fact, prosecutors have opened an investigation into Fed Chairman Jerome Powell. In a occasional statement, Powell said the threat of criminal charges against him is a consequence of the central bank setting interest rates based on its best judgment of what will serve society, rather than following the President’s preferences.
Despite the negative developments, the deterioration in the USD remains narrow due to reduced hopes for more aggressive Fed easing, which in turn could limit gains for the GBP/USD pair. The decline in the U.S. unemployment rate largely overshadowed the error in the headline U.S. nonfarm payrolls (NFP) data and confirmed potential stagnation in monetary policy in the first quarter. That, in turn, is keeping dollar bears from making aggressive bets as attention turns to the latest U.S. consumer inflation data due out today.
Meanwhile, rising rates for two further Bank of England (BoE) interest rate cuts in 2026 could hurt the British pound (GBP) and also undiscovered any significant gain in GBP/USD. This week, investors will also have to deal with Wednesday’s publication of the American Producer Price Index. Additionally, the monthly UK GDP report released on Thursday would provide a significant boost to the currency pair.
Sterling FAQs
The pound sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. As of 2022, it is the fourth most traded currency unit in the world, accounting for 12% of all transactions, with an average value of $630 billion per day. Its key trading pairs are GBP/USD, also known as “The Cable”, which makes up 11% of FX, GBP/JPY or “The Dragon” as traders call it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most significant factor influencing the value of the pound sterling is the monetary policy pursued by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a constant inflation rate of around 2%. The basic tool to achieve this goal is to adjust interest rates. When inflation gets too high, the BoE will try to contain it by raising interest rates, making access to credit more pricey for citizens and businesses. 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 that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to lower borrowing prices so that companies borrow more to invest in projects that generate economic growth.
The published data are used to assess the condition of the economy and may affect the value of the pound sterling. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the GBP exchange rate. A mighty economy is good for sterling. Not only will it attract more foreign investment, but it may prompt the BoE to raise interest rates, which will directly strengthen the British pound. Otherwise, if economic data is frail, sterling is likely to fall.
The next significant data release for the pound sterling is the trade balance. This indicator measures the difference between what a country earns from exports and what the country spends on imports over a given period. If a country produces a highly sought after export, its currency will only benefit from the additional demand created by foreign buyers willing to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
