- The United Kingdom's annual growth remained tepid in the third quarter of the year.
- The United States reported Durable Goods Orders rose a modest 0.4% in November.
- The GBP/USD pair trades in the red and could extend its slide towards 1.2500.
The British Pound resumed its slide against its American rival in the American session on Monday, as the US Dollar (USD) found near-term demand in a risk-averse environment. The GBP/USD pair fell to an intraday low of 1.2473 following the release of mixed United Kingdom (UK) data.
The UK reported that the Q3 Current Account posted a deficit of £ 18.099 billion, improving from the £-24.002 billion posted in the previous quarter.
The Q3 Gross Domestic Product (GDP) suffered downward revisions, with the annual reading confirmed at 0.9%, below the 1% expected. The UK economy did not grow in the quarter vs expectations of a modest 0.1% advance.
As for the United States (US), the country released Durable Goods Orders, which fell by 1.1% in November, worse than the expected decline of 0.4%. Also, CB Consumer Confidence edged sharply lower in December, falling to 104.7 from 112.8 in November and missing the expected 112.9.
GBP/USD technical outlook
Intraday technical readings support a bearish continuation in the near term, as GBP/USD was unable to deliver a relevant bounce for the aforementioned low. Immediate support comes at the 1.2480 area, followed by the 1.2420/40 region, where the pair posted multiple intraday highs and lows in the last few months. A recovery could gain traction should the pair recover above 1.2560, with the next potential bullish target at 1.2620.
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.
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