GBP/USD finds thin technical support ahead of global PMIs

Coming up on Friday: UK Retail Sales, UK and US PMIs, UoM sentiment

An otherwise one-sided trading week for GBP/USD traders will round things out with a fresh batch of UK Retail Sales data at 07:00 GMT. Monthly Retail Sales figures are expected to ease back again in October, keeping in-line with the UK’s recent habit of missing the mark on economic data releases.

UK S&P Global Purchasing Managers Index (PMI) activity survey results will follow up at 09:30 GMT. UK PMIs for both the Manufacturing and Services components are expected to tick lower as economic activity struggles on within Europe’s largest non-EU economy.

US S&P Global PMI data will round out the week at 14:45 GMT. Services PMI data is expected to moderate and hold flat near 54.8, while Manufacturing activity expectations are forecast to decline to 52.0 from 52.5.

The latest University of Michigan (UoM) Consumer Expectations and Sentiment Indexes will also get an update at 15:00 GMT on Friday. Things have been not-great on the consumer sentiment side of the American economic data docket, and the trend is more or less expected to continue through November.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.