GBP/USD remains attached to 1.3000 after Fed rate hold
- GBP/USD continues to anchor near 1.3000 after Fed keeps rates steady.
- Despite generally acknowledging that risks have increased, the Fed is still set to deliver two more rate cuts in 2025.
- Markets are betting that the next quarter-point rate trim will come in June.
GBP/USD remained pinned to recent highs near the 1.3000 handle on Wednesday, with market sentiment bolstered into the high side after the Federal Reserve (Fed) held steady on its plans to deliver more rate cuts in 2025, albeit later in the year. Rate markets are still pricing in another quarter-point cut from the Fed at the US central bank’s June meeting, and Fed Chair Jerome Powell reiterated that the Fed still strong growth and a healthy labor market underpinning the US economy.
However, not all is rosy in the Fed’s outlook: Fed policymakers have trimmed their growth outlook for the year, with US Gross Domestic Product (GDP) growth to slow to just 1.7% through 2025, several points below December’s forecast of 2.1%. Fed Chair Powell also nodded a head at downside risks at the hands of the Trump administration’s trade policies, however the Fed thus far continues to bet that inflationary effects from global tariff-fueled trade wars will be mild and temporary.
The Bank of England (BoE) is up next with their own interest rate call during Thursday’s European market session. Market fireworks will be notably thinner as the BoE is slated to again stand pat on interest rates for the time being.
Friday will close out the week with mid-tier UK GfK Consumer Confidence, expected to dip further into the negative and forecast to clock in at -21.0 versus the previous print of -20.0.
GBP/USD price forecast
GBP/USD continues to churn chart paper at the top end of near-term price action. Bids remain trapped near the 1.3000 major technical handle, and Cable is on pace to close higher for a third straight week.
The pair is trading into four-month highs, a mere third of a percent away from cracking into its highest levels since last October.
GBP/USD daily chart
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.