British Pound gains positive traction as USD remains depressed on softer bond yields
- GBP/USD kicks off the new week on a positive note as softer US bond yields undermine the USD.
- Geopolitical uncertainties could help limit deeper USD losses ahead of key data/event risks.
- The UK GDP, US inflation figures, BoE Bailey and Fed Warsh's speeches are due this week.
The GBP/USD pair attracts some buyers for the third straight day, trading around mid-1.3200s during the Asians session on Monday, though it remains confined in a familiar range held over the past three weeks or so.
The recent minor pullback in US bond yields from multi-year highs keeps US Dollar bulls on the defensive, which, in turn, is seen as a key factor acting as a tailwind for the GBP/USD pair. Meanwhile, UK Chancellor John Healey repeated his commitment to strict fiscal discipline during his upcoming debut budget on October 28, turning out to be another factor supporting the British Pound (GBP) and the currency pair.
Traders, however, might opt to wait for Healey's speech at the annual meetings of the IMF and World Bank in Bangkok. Traders will further take cues from the Bank of England (BoE) Governor Andrew Bailey and the US Federal Reserve (Fed) Chair Kevin Warsh's speeches on Friday. Apart from this, the monthly UK GDP report and the latest US inflation figures should provide a fresh impetus to the GBP/USD pair.
In the meantime, persistent geopolitical uncertainties stemming from the US-Iran standoff could help limit losses for the safe-haven buck. In fact, tensions in the Middle East deepened on Sunday after Iran’s top security official declared Washington’s response to its proposal for reopening the strategic Strait of Hormuz insufficient, while US President Donald Trump considers renewed military strikes against Tehran.
This might hold back traders from placing aggressive bearish bets on the Greenback amid relatively thin liquidity on the back of a holiday in the US and keep a lid on any further appreciation for the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying and a breakout through a short-term range before confirming that the currency pair has bottomed out and positioning for further gains.
GBP/USD 4-hour chart
Technical Analysis
The recent range-bound price action witnessed over the past three weeks or so could be categorized as a bearish consolidation phase against the backdrop of the decline from the August swing high. Moreover, the GBP/USD pair trades beneath the 100-period Simple Moving Average (SMA) dynamic barrier on the 4-hour chart, suggesting that rallies remain capped as sellers retain the advantage while spot prices stay below this barrier.
The said barrier is pegged near 1.3260 and is followed by the top boundary of the trading range, around 1.3300. Sustained strength above the latter is needed to ease bearish pressure and open the way toward higher levels. On the downside, bears might await some follow-through weakness below 1.3180 before placing fresh bets and positioning for an extension of the downfall from the August monthly swing high near 1.3675.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.