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, aka ‘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 Pound Sterling (GBP) delivered a consolidation breakout after the United Kingdom’s Office for National Statistics reported a significant growth in jobless benefits and healthy lay-offs in the labor market. The GBP/USD pair extends its upside as a considerable jump in the labor cost index ensures more interest rate hikes from the Bank of England (BoE) cannot be ruled out. The Unemployment Rate rose to a fresh nine-month high at 4.2%.
- Pound Sterling delivers a breakout of the consolidation after UK’s ONS reported weak labor market data.
- United Kingdom labor market witnessed lay-offs in June and a healthy jump in jobless claims in July.
- Britain’s Unemployment Rate rose to a fresh nine-month high at 4.2%.
Pound Sterling comes out of the woods and tests the region above the round-level resistance of 1.2700. The Cable delivered a V-shape recovery after printing a fresh six-week low around 1.2600 as investors considered the Pound Sterling a value bet. Medium-term sentiment for the Pound Sterling is still bearish as the Cable is trading below the 20 and 50-day Exponential Moving Averages (EMAs). The asset could be exposed to fresh lows if it fails to sustain above the crucial support of 1.2600.
Pound Sterling FAQs
United Kingdom’s vulnerable labor market report indicates the consequences of aggressively tight interest rate policy by the BoE. Labor shortages and high food inflation have remained major contributors to persistent inflation and lay-offs in June ensure easing inflationary pressures ahead. After a weak labor market report and healthy growth rate, investors will shift their focus toward the inflation data for July, which will be published on Wednesday at 06:00 GMT.
Daily Digest Market Movers: Pound Sterling moves north despite weak labor market data
- Pound Sterling jumps above 1.2700 as the United Kingdom labor market data demonstrates the consequences of the aggressive rate-tightening cycle by the Bank of England.
- Claimant Count Change for July rose sharply by 29K, higher than the 16.2K jobless claims recorded in June. On the contrary, investors forecasted a decline in the number of claims by 7.3K.
- The UK labor market witnessed a decline in payrolls by 66K in June while investors forecasted fresh additions of 75K job seekers. In May, the addition of 102K employees in the workforce was recorded.
- Three months to June Unemployment Rate rose to 4.2% vs. the estimates and the former release of 4.0%.
- The key catalyst that is going to discomfort BoE policymakers is the significant growth in labor cost data.
- April-June quarter Average Earnings excluding bonuses rose to 7.8% vs. a downwardly revised prediction of 7.4%. Earnings data including bonuses jumped significantly to 8.2% in the same period, considerably higher than the consensus of 7.3%.
- The BoE might continue tightening interest rates as significant growth in labor cost is sufficient to offset higher jobless claims and lay-offs.
- Last week, UK factory activities for June and Q2 Gross Domestic Product (GDP) grew significantly despite the continuation of aggressive policy-tightening by the Bank of England.
- Monthly GDP swung from a contraction and grew by 0.5% in June, more than the 0.2% expected. In the January-March quarter, the economy contracted by 0.1%.
- Quarterly GDP grew by 0.2% in 2Q, while analysts had forecasted a stagnant performance. The annual growth rate was 0.4%, doubling the consensus and the prior release of 0.2%.
- Monthly Industrial Production and Manufacturing Production for June expanded strongly by 1.8% and 2.4% respectively, outperforming expectations by a wide margin.
- After the hangover of factory activities and the labor market, investors will shift their focus toward the inflation and Retail Price Index data.
- UK inflation is expected to continue its softening spell as the BoE has raised interest rates to 5.25% and further policy tightening is widely anticipated.
- US Dollar appeal continues to shine as investors lose confidence in China’s economic growth, concerned about deflation risks due to weak demand and declining exports.
- Investors hope that the Federal Reserve (Fed) will keep the interest rate policy unchanged in September as modest growth in the United States inflation is in line with the Fed’s desired rate of 2%.
- On Tuesday, investors will keep an eye on the US Retail Sales, which will be released at 12:30 GMT. Retail sales are seen expanding by 0.4% in July, accelerating from the 0.2% increase recorded for June. A similar performance is expected for retail sales excluding autos.
Technical Analysis: Pound Sterling delivers a consolidation breakout
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.
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.
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.