The GBP/USD pair edges higher for the second straight day on Tuesday and looks to build on the previous day’s recovery from the 1.3390 region, or a three-week low. Spot prices currently trade around the 1.3475 region, up nearly 0.10% for the day.
The US Dollar (USD) struggles to attract any meaningful buyers amid growing worries about the US Federal Reserve’s (Fed) independence, and turns out to be a key factor acting as a tailwind for the GBP/USD pair. In fact, prosecutors opened a criminal investigation into Fed Chair Jerome Powell. In a rare statement, Powell said that the threat of criminal charges against him is a consequence of the central bank setting interest rates based on the best assessment of what will serve the public, rather than following the preferences of the President.
Despite the negative development, the downside for the USD remains limited amid reduced bets for more aggressive policy easing by the Fed, which, in turn, could cap gains for the GBP/USD pair. A fall in the US Unemployment Rate, to a larger extent, overshadowed a miss in the headline US Nonfarm Payrolls (NFP) figures and backed the case for potentially stagnant monetary policy in the first quarter. This, in turn, holds back the USD bears from placing aggressive bets as the focus shifts to the latest US consumer inflation figures, due later today.
In the meantime, rising bets for two more interest rate cuts by the Bank of England (BoE) in 2026 could act as a headwind for the British Pound (GBP) and also keep a lid on any meaningful upside for the GBP/USD pair. Traders this week will also confront the release of the US Producer Price Index on Wednesday. Apart from this, the monthly UK GDP report on Thursday would provide some meaningful impetus to the currency pair.
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.
Source: https://www.fxstreet.com/news/gbp-usd-holds-steady-around-13475-as-traders-seem-hesitant-ahead-of-us-cpi-report-202601130129
