GBP/USD softens to below 1.3500 ahead of UK Retail Sales release

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The GBP/USD pair extends the decline to near 1.3490 during the Asian trading hours on Friday, pressured by renewed US Dollar (USD) demand. Traders prefer to wait on the sidelines ahead of US President Donald Trump's tariff deadline and the Federal Reserve (Fed) policy meeting next week.

GBP/USD extends its downside to around 1.3490 in Friday’s Asian session.
Uncertainty over Fed rate cuts curbs risk appetite, undermining the Pound Sterling.
Traders await the UK June Retail Sales report, which is due later on Friday.

Uncertainty over interest-rate cuts by the US central bank curbed risk appetite, which undermines the Pound Sterling (GBP). Traders reduce their bets that the Fed will deliver a rate cut in the July meeting, expecting less than two reductions this year as jobless claims fell for six consecutive weeks.

Meanwhile, Fed Governor Christopher Waller delivered dovish comments, saying that policymakers should lower rates this month to support a labor market that is showing signs of weakness. Markets largely believe that the Fed will stay on hold when it meets next week but that it will likely cut rates in September and once more before the end of the year.

On the GBP’s front, traders are increasingly confident that the Bank of England (BoE) will cut interest rates at its August monetary policy meeting, which might weigh on the Cable. However, traders will take more cues from the UK Retail Sales data due on Friday, which is expected to show an increase of 1.2% MoM in June from a fall of 2.7% in May. If the data show a stronger-than-expected outcome, this could boost the GBP against the USD in the near term.

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.