GBP/USD recovers toward 1.3500 ahead of US consumer sentiment data
- GBP/USD trades in positive territory above 1.3450 on Tuesday.
- Durable Goods Orders in the US fell less than expected in July.
- The Conference Board will publish Consumer Confidence Index for August.
Following Monday's bearish action, GBP/USD stages a rebound on Tuesday. At the time of press, the pair was up 0.25% on the day at 1.3485.
Trump-Fed feud weighs on USD
The risk-averse market atmosphere caused GBP/USD to edge lower on Monday. Growing concerns over the Federal Reserve's (Fed) independence, however, makes it difficult for the US Dollar (USD) to gather strength and helps the pair gain traction on Tuesday.
United States (US) President Donald Trump announced on Truth Social late Monday that he has fired Fed Governor Lisa Cook. In response, Cook released a statement via her attorneys, noting that Trump has no authority to fire her and that she will carry out her duties.
Meanwhile, the data published by the US Census Bureau showed that Durable Goods Orders fell by 2.8%, or $8.8 billion, in July to $302.8 billion. This reading came in better than the market expectation for a decrease of 4% but failed to support the USD.
Later in the session, the Conference Board will publish Consumer Confidence Index data for August. Investors will also keep a close eye on fresh developments surrounding Trump-Fed feud.
Pound Sterling FAQs
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).
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.
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.
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.