Pound Sterling stuck in a tight range ahead of US Q4 GDP data – Crypto News – Crypto News
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Pound Sterling stuck in a tight range ahead of US Q4 GDP data – Crypto News

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  • Pound Sterling remains inside the woods ahead of US Q4 GDP data.
  • Strong UK PMIs have prompted expectations of hawkish guidance from BoE policymakers.
  • Going forward, policy decisions from the Fed/BoE will be in focus.

The Pound Sterling (GBP) struggles for direction as investors shift focus towards the central bank policy decisions, which are scheduled for next week. The GBP/USD remains sideways as a steady interest rate decision by the Bank of England (BoE) is widely anticipated. Market participants will keenly focus on the outlook for interest rates as strong PMI’s for December has allowed BoE policymakers to support the argument of maintaining interest rates at restrictive levels for a longer period.

Investors should brace for high volatility as the market mood will be guided by the United States Q4 Gross Domestic Product (GDP) data. Upbeat US data would lower the odds advocating an early interest rate-cut by the Federal Reserve (Fed) and support the US Dollar

Daily Digest Market Movers: Pound Sterling turns sideways ahead of US data

  • Pound Sterling falls to near 1.2700 against the US Dollar as the market mood is slightly cautious ahead of the United States Q4 GDP and core underlying inflation data for January.
  • The GBP/USD pair delivered a strong upside on Wednesday after robust preliminary UK PMI data for January.
  • The S&P Global reported the Manufacturing PMI has risen to 47.3 in January (preliminary reading), against expectations of 46.7 and the prior reading of 46.2. Services PMI expanded to 53.8 vs. the former reading of 53.4. Investors projected a slight decline in the economic data to 53.2.
  • A PMI figure below the 50.0 threshold is considered a contraction; above 50 indicates expansion. 
  • The agency reported that manufacturing activities were supported by increased hopes price pressures will ease, lower borrowing costs and a faster economic recovery.
  • Improved Manufacturing PMI numbers have prompted the need for the BoE to keep interest rates higher for a longer period than what was previously anticipated by market participants. If this trend continues it will likely support Sterling. 
  • Going forward, market participants will shift focus to the interest rate decision by the Bank of England, which will be announced next week. 
  • The BoE is widely anticipated to maintain interest rates steady at 5.25% for the fourth time in a row while fresh guidance on the interest rate outlook will be keenly watched. 
  • Meanwhile, the US Dollar Index (DXY) has delivered a sharp recovery to near 103.30 as appeal for safe-haven improves ahead of the crucial economic data.
  • As per the consensus, the US economy grew at a slower pace of 2.0% after expanding 4.9% in the third quarter of 2023. 
  • The hopes of a rate cut by the Federal Reserve (Fed) in March could increase if the growth rate turns out slower-than-projected while stronger numbers could prompt the higher-for-longer interest rate narrative.

Technical Analysis: Pound Sterling trades inside Wednesday’s trading range

Pound Sterling oscillates inside Wednesday’s trading session as focus shifts to central bank policy decisions, scheduled for next week. The broader-term trend for the GBP/USD pair remains upbeat as it sustains above the 20- and 50-day Exponential Moving Averages (EMAs). The 14-period Relative Strength Index (RSI) trades in the 40.00-60.00 range, indicating a sharp decline in volatility. A downside move could occur if the Cable drops below the crucial support of 1.2650.

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, aka ‘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.

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