GBP/USD maintains position above 1.2950 near four-month highs
- GBP/USD pair reached to four-month high of 1.2989 on March 13.
- The US Dollar could further depreciate as recent US inflation data fueled expectations of the Fed delivering rate cuts soon.
- RICS Housing Price Balance fell to 11% in February, marking its second consecutive decline.
GBP/USD attempts to extend its gains for the third successive day, trading around 1.2960 during the Asian session on Thursday. The GBP/USD pair rises as the US Dollar (USD) faces headwinds amid ongoing tariff uncertainty from US President Donald Trump and growing concerns over a potential US recession.
The Greenback may further lose ground as the US inflation cooled more than anticipated in February, raising speculation that the Federal Reserve (Fed) might cut interest rates sooner than expected. Market participants are now awaiting Thursday’s US Producer Price Index (PPI) data and weekly jobless claims for further economic cues.
US monthly headline inflation slowed to 0.2% in February from 0.5% in January, while core inflation eased to 0.2%, below the forecasted 0.3%. On an annual basis, headline inflation declined to 2.8% from 3.0%, while core inflation slipped to 3.1% from 3.3%.
In the United Kingdom (UK), the latest Residential Market Survey by RICS showed that the Housing Price Balance dropped to 11% in February, marking its second consecutive decline. This figure fell short of market expectations of 20% and was lower than January’s 21% reading.
UK Prime Minister Keir Starmer expressed optimism that Britain could avoid US tariffs on steel and aluminum, emphasizing a "pragmatic approach" in negotiations while keeping all options open. Unlike the European Union (EU), which has signaled immediate retaliation against Trump’s tariffs, the UK reaffirmed its commitment to trade talks with the United States (US).
Meanwhile, the UK’s 10-year gilt yield surged to 4.68%, its highest level in two months, as expectations grew that the Bank of England (BoE) will maintain elevated interest rates for a prolonged period. Traders now anticipate just a 52 basis point (bps) rate cut in 2025, scaling back earlier forecasts for more aggressive easing. Investors are now looking ahead to Friday’s UK monthly GDP data for January, which could provide further insights into the country’s economic outlook.
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.