GBP/USD extends into a fourth down day as Cable pressure wanes

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GBP/USD fell for a fourth straight day on Wednesday, coming within inches of 1.3300 before staging a half-hearted recovery to the 1.3350 region but still ending the day on a down note.

GBP/USD continues to step closer toward 1.3300.
Cable bids continue to dry up ahead of key US CPI inflation data.
A fresh round of trade war threats from the Trump administration is boosting risk aversion.

GBP/USD fell for a fourth straight day on Wednesday, coming within inches of 1.3300 before staging a half-hearted recovery to the 1.3350 region but still ending the day on a down note. Cable traders will be getting a breather on the economic data front until a batch of key releases on Friday that will feature both UK and US data updates.

Global risk appetite took a knee on Wednesday as the Trump administration publicly weighs its options on retaliating against China, who imposed stiff export controls on rare earths in recent weeks. US President Donald Trump has run the gamut of trade war retaliations, from canceling planned trade talks with Chinese President Xi Jinping to threatening an additional 155% tariff on all Chinese goods. Now, the Trump administration is teasing that it may impose export controls of its own on US-producted software products, raising investor concerns that the ongoing trade spate between the US and China could begin to negatively impact markets.

After a lull in the economic data docket on Thursday, impactful releases will resume on Friday. UK Retails Sales and the S&P Global Purchasing Managers Index (PMI), both for September, will release during Friday’s London market session. US inflation data will follow up to close out the trading week, with US Consumer Price Index (CPI) inflation in the barrel and will serve as one of the last key inflation readings before the Federal Reserve (Fed) convenes for its next interest rate decision on October 29.

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.