GBP/USD soars amid Greenback collapse, breaches four-year highs
- GBP/USD gained over one percent on Tuesday as the US Dollar’s woes continue.
- The UK side of the economic data docket remains thin, keeping macro in the driver’s seat.
- The Fed’s upcoming rate call is expected to be a snooze unless rate rhetoric shifts.
GBP/USD is well on its way to a second straight week of strong gains as the US Dollar (USD) gives up the ghost on the back of ongoing trade war rhetoric undercutting the Greenback’s strength. The Pound Sterling is on pace to close in the green for a third straight month against the US Dollar, as the pace of Cable gains continues to pick up the pace and hit multi-year highs.
The Federal Reserve (Fed) is set to announce its first rate decision of the year on Wednesday, with no change expected. Investor focus will be on forward guidance, particularly signals around the timing of potential rate cuts. Futures markets currently price in two quarter-point cuts by the end of 2026.
Recent announcements of further intentional trade frictions from US President Donald Trump have done the Greenback no favours as of late. Donald Trump’s latest batch of tariff threats targeting key EU members as well as the UK over ownership of Greenland have largely fallen on deaf ears. Despite Trump’s ambiguous claims that things are “progressing on Greenland”, there appears to be little evidence that European nations are currently poised to back down from counter-tariff measures should the need arise.
GBP/USD price forecast
Cable is knocking into its highest bids in 51 months, or a little over four years, and the pair has broken through key technical levels that hampered the Pound’s mid-2025 bull run. Bidders are back, stronger than ever with a steadily-weakening US Dollar in tow. However, 1.4000 remains a key technical hurdle for a bullish continuation, and several months of firm gains followed by a one-sided decline is something of a pattern that GBP/USD traders should be used to by now.
GBP/USD daily chart
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.