The GBP/USD pair holds positive ground near 1.3450 during the early European trading hours on Tuesday. The British Pound (GBP) strengthens against the US Dollar (USD) following the UK employment report. Attention will shift to the UK Consumer Price Index (CPI) inflation data, which is due later on Wednesday.
Data released by the Office for National Statistics (ONS) on Tuesday showed that the UK ILO Unemployment Rate remained steady at 4.9% in the three months to May. This figure came in below the market consensus of 5.0%.
Meanwhile, the number of people claiming unemployment benefits increased by 6.7K in June, versus a revised increase of 1.3K prior, better than the expected 28.3K gain. The Employment Change data arrived at 147K in May against 100K seen in April.
The Cable edges slightly higher in an immediate reaction to the UK jobs data. Traders will take more cues from the UK CPI inflation report on Wednesday for fresh impetus. The headline CPI is expected to see a rise of 2.7% YoY in June, while the core CPI is projected to show an increase of 2.5% during the same period.
New UK Prime Minister Andy Burnham took office on Monday and vowed to stick to the fiscal rules, adding that he will not be “taking risks with the economy.” Burnham appointed former Defence Secretary John Healey as Chancellor of the Exchequer.
“It is still unclear exactly what Burnham’s economic policy will look like, which is leading to significant confusion, hence the selloff in the bond market on Monday,” said Kathleen Brooks, research director at XTB.
Traders will closely monitor the developments surrounding US-Iran tensions. CNBC reported on Tuesday that US airstrikes on Iran have entered their tenth consecutive day following the deaths of three US service members. US President Donald Trump said on Monday that Iran would pay for the deaths of three US soldiers.
The Iranian Islamic Revolutionary Guards Corps (IRGC) said that it struck US military targets, including air defence systems in Bahrain and Kuwait. The Iranian military stated that it hit two air defence systems and a radar installation at two different US outposts in Bahrain, as well as missile defence systems and radars and satellite reception systems in Kuwait. Rising tensions in the Middle East could boost a safe-haven currency such as the Greenback and create a headwind for the major pair in the near term.
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.
