GBP/USD holding just below 1.32 as UK labor data rounds the corner

UK data on deck, US data remains MIA

UK Average Earnings, Claimant Count Change, 3-month Employment Change, and 3-month ILO Unemployment Claims are all due at the outset of the London market session on Tuesday. Wages both with and without bonuses factored in are expected to tick down slightly for the rolling three-month period ended in September. The UK’s domestic economy is also expected to add slightly fewer unemployment benefits seekers in October than the month prior; however, the three-month ILO Unemployment Rate is expected to tick upwards to 4.9% from 4.8%.

Official datasets on employment and inflation remain dark in the US amidst the longest-running federal government funding freeze in the country’s history. Donald Trump stands tall among US presidents for personally overseeing both of the longest US government shutdowns ever recorded. Still, markets are now hopeful that a short-term funding solution will be passed by the US House of Representatives before the end of the week, which will theoretically jumpstart the flow of official inflation and labor statistics resources.

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.

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