The GBP/USD pair falls throughout the Asian session on Wednesday, eroding a portion of the previous day’s strong advance up to almost a four-month high near 1.2965. Spot prices are currently trading at 1.2935, but the decline lacks bearish conviction as traders eagerly await the release of US consumer inflation data before putting new directional bets.
The US Consumer Price Index (CPI) report will have a significant impact on market expectations on the Federal Reserve’s (Fed) rate-cutting path, which will fuel US Dollar (USD) demand and provide further impetus to the GBP/USD pair. Meanwhile, some repositioning activity before of the key data helps the dollar recover some of the previous day’s decline to its lowest level since mid-October, acting as a headwind for the currency pair. Any major USD appreciation, however, appears elusive in light of growing consensus that the Federal Reserve (Fed) will cut interest rates many times this year due to concerns about a tariff-driven slowdown in US economic activity.
Aside from that, predictions that the Bank of England (BoE) will lower rates more slowly than other central banks, notably the Fed, may underpin the British Pound (GBP) and boost the GBP/USD pair.
Even from a technical standpoint, last week’s prolonged breakout above the critical 200-day Simple Moving Average (SMA) was interpreted as a crucial trigger for bulls, implying that the currency pair’s path of least resistance is to the upside. As a result, any further corrective decline may still be viewed as a buying opportunity and will most likely be limited.
What is the Pound Sterling?
The pound sterling (GBP) is the world’s oldest currency (886 AD) and the official currency of the United Kingdom. According to 2022 data, it is the world’s fourth most traded foreign exchange (FX) unit, accounting for 12% of all transactions, with an average daily volume of $630 billion. Its primary trading pairs are GBP/USD, often known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as traders call it (3%), and EUR/GBP (2%). The Bank of England (BoE) issues the pound sterling.
How does the trade balance affect the pound?
Another important data release for the Pound Sterling is the Trade Balance. This indicator calculates the difference between what a country makes from exports and what it spends on imports in a given period. If a country produces highly sought-after exports, its currency will profit solely from the increased demand generated by overseas buyers looking to purchase these commodities. A positive net trade balance so enhances a currency, whereas a negative balance weakens it.