In the third quarter of the year, the annual growth in the United Kingdom remained sluggish. Meanwhile, the United States reported a slight increase of 0.4% in its Durable Goods Orders for November. The GBP/USD pair showed weakness and might continue its downward trend towards the 1.2500 mark.
During Monday’s American session, the British Pound continued to lose ground against the US Dollar. This movement was driven by a short-term demand for the Dollar, fueled by a risk-averse market sentiment. The GBP/USD pair dropped to as low as 1.2473 in response to some mixed economic data from the UK.
The UK announced that its Current Account showed a deficit of £18.099 billion for Q3, which was an improvement from the £24.002 billion deficit recorded in the previous quarter.
Revisions for the Q3 Gross Domestic Product (GDP) were a letdown, with the annual figure settling at 0.9%, falling short of the anticipated 1%. Moreover, the economy showed no growth for the quarter, despite expectations for a small increase of 0.1%.
In the United States, the Durable Goods Orders weren’t as promising as anticipated, dipping by 1.1% in November, contrary to the forecasted 0.4% drop. The CB Consumer Confidence also took a sharp hit in December, falling from 112.8 in November to 104.7, failing to meet the expected 112.9.
### GBP/USD Technical Overview
Looking at the short-term technical indicators, they suggest a bearish outlook for the GBP/USD pair, as it struggled to rebound from the recent low. The nearest support level is at 1.2480, followed by the 1.2420/40 range, which has served as a critical area for fluctuations in recent months. A recovery might gain momentum if the pair can climb back above 1.2560, with the next upward target looming at 1.2620.
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### Frequently Asked Questions about Pound Sterling
The Pound Sterling, often abbreviated as GBP, holds the title of the world’s oldest currency, dating back to 886 AD, and serves as the official currency of the United Kingdom. It’s the fourth most traded currency on the global foreign exchange market, making up 12% of all transactions and averaging a daily turnover of $630 billion, based on 2022 data. Key trading pairs include GBP/USD, known as ‘Cable’, capturing 11% of the market, GBP/JPY, dubbed ‘Dragon’ by traders (3%), and EUR/GBP (2%). The Bank of England (BoE) is responsible for issuing the Pound Sterling.
Monetary policy set by the Bank of England is the single most influential factor affecting the Pound’s value. The BoE primarily focuses on “price stability,” aiming for a steady inflation rate of around 2%. Its main strategy for achieving this involves adjusting interest rates. When inflation climbs too high, the BoE raises interest rates to rein in consumer and business borrowing, which tends to boost the GBP as higher interest rates attract global investors. Conversely, if inflation is too low, indicating slowed economic growth, the BoE might lower rates to make borrowing cheaper and stimulate investment.
Economic data releases play a crucial role in assessing the UK’s economic health and can sway the Pound’s value in the process. Indicators such as GDP, Manufacturing and Services PMIs, and employment figures are pivotal. A robust economy generally bodes well for Sterling, drawing in more foreign investments and potentially prompting the BoE to hike rates, directly strengthening the currency. Conversely, weak economic data could lead to a decline in the Pound’s value.
Another key report for the Pound is the Trade Balance, measuring the difference between a country’s export earnings and import expenditures. A country with in-demand exports will see its currency strengthened by the heightened foreign demand. Thus, a positive Trade Balance bolsters a currency, whereas a negative balance has the opposite effect.
