GBP/USD weakens below 1.3450, US ISM Services PMI data looms

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The GBP/USD pair declines to around 1.3430 during the Asian trading hours on Thursday. The Pound Sterling (GBP) weakens against the US Dollar (USD) amid UK fiscal worries.

GBP/USD softens to near 1.3430 in Thursday’s Asian session.
The UK government will hold the annual budget on November 26.
The softer-than-expected job openings data supported investor expectations of a Fed rate cut.

The GBP/USD pair declines to around 1.3430 during the Asian trading hours on Thursday. The Pound Sterling (GBP) weakens against the US Dollar (USD) amid UK fiscal worries. The US weekly Initial Jobless Claims, the ADP Employment Change and the ISM Services Purchasing Managers Index (PMI) are the highlights later on Thursday.

UK Finance Minister Rachel Reeves said on Wednesday that she would deliver her annual budget on November 26, insisting the economy was not "broken" and that she would keep a grip on spending to help lower inflation and borrowing costs, per Reuters. However, concerns about the UK's ability to keep its finances under control weigh on the sentiment and drag the Cable lower against the USD.

The number of job openings on the last business day of July stood at 7.181 million, according to the US Bureau of Labor Statistics (BLS). This figure followed the 7.357 million (revised from 7.437 million) openings recorded in June and came in below the market consensus of 7.4 million.

Weaker UK labor market released on Wednesday reinforced expectations the Federal Reserve (Fed) will cut rates this month. This, in turn, might undermine the Greenback and help limit the major pair’s losses. Traders are now pricing in about 97% odds of the Fed cutting interest rates later this month, up from 91% a week earlier, CME FedWatch showed. They are also pricing in 139 basis points (bps) of reductions by the end of next year.

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.