British Pound sells off hard as US surveys outpace the UK's

GBP/USD sells off to its lowest since early July as US surveys beat forecasts.
UK services PMI slips to a three-month low of 51.7.
Thursday's three BoE speakers all voted to hold on September 17.

Wednesday's flash Purchasing Managers Index (PMI) surveys showed US business growing at its fastest pace since July 2021 and British business slowing. US services came in at 58.7 against a 56 forecast and UK services at 51.7 against 52, so the American beat was nine times the size of the British miss. GBP/USD is trading just under 1.3250, its lowest since early July.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Money tends to follow the higher interest rate, and US rates are already above the UK's. The Fed lifted its rate to 3.75-4.00% on September 16, against 3.75% for the UK's Bank Rate. Fed Governor Barr said on Wednesday that further increases are likely to be needed, and the surveys point the same way.

Thursday's BoE speakers all voted to wait

The Bank of England (BoE) held the Bank Rate at 3.75% on September 17 in a 6-3 vote, with Chief Economist Pill and external members Greene and Mann voting for 4%. UK services firms raised their prices at the fastest pace in four months, according to Wednesday's survey.

BoE Deputy Governor Breeden and external member Dhingra speak on Thursday at 09:30 GMT, and Deputy Governor Lombardelli at 14:00 GMT. All three were among the six who voted to hold, so any hint of a November hike on Thursday would have to come from people who voted against one in September.

One British release left, against four American ones

The UK's last release of the week is GfK consumer confidence on Thursday at 23:01 GMT, forecast at -16 from -14. The US has jobless claims and new home sales on Thursday, then durable goods orders and consumer sentiment from the University of Michigan (UoM) on Friday. The one British number left measures how gloomy households feel, and the forecast is for gloomier.

Levels and bias

Resistance: 1.3300 gave way on Wednesday after lows just above it held from September 17 to Tuesday. Above that, the 1.3400 area has capped every session since the Fed's September 16 hike.

Support: 1.3200 is the first floor, with Wednesday's low just above it and the late-June low just below it. A break of both opens 1.3150.

Bias: The lean is short below 1.3300, with 1.3200 as the first objective and 1.3150 as the second. The daily Stochastic Relative Strength Index (Stoch RSI), near 13, is still falling. A daily close back above 1.3350 ends the short.

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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