British Pound slips due to stable US Dollar, rising oil prices
- GBP/USD struggles amid a strong US Dollar and surging Treasury yields.
- Markets price in a 78.3% chance of a Fed rate hike in December despite an October hold.
- Rebounding oil prices drive UK gilt yields to multi-year highs, threatening economic growth.
GBP/USD remains subdued for the second successive day, trading around 1.3210 during the Asian hours on Thursday. The pair inches lower as the US Dollar (USD) holds its ground, bolstered by elevated US Treasury bond yields that have climbed near their highest levels since 2002.
Meanwhile, a recent spike in oil prices has reignited concerns over persistent inflation, strengthening the prospect of higher interest rates. Traders are now looking toward upcoming speeches from Federal Reserve (Fed) officials, including Christopher Waller and Alberto Musalem, for further directional cues.
Federal Reserve policy expectations continue to anchor sentiment. According to the minutes from the Fed's last meeting, policymakers were united in supporting their September rate hike, with a majority agreeing that an additional increase by year-end would be appropriate. While markets largely anticipate the central bank will keep rates on hold at its October policy meeting, CME's FedWatch tool indicates traders are still pricing in a 78.3% probability of a rate hike in December.
The British Pound (GBP) is confronting its own set of headwinds. The rebound in oil prices has intensified UK inflation concerns, reinforcing expectations that interest rates will remain higher for longer. This backdrop has pushed UK gilt yields to multi-year highs, adding pressure to the economic outlook and weighing on broader UK growth prospects.
Strait of Hormuz security risks mount as tanker attacks rise
Strategists at DBS point to escalating security risks in the Strait of Hormuz, noting that, according to the UK Maritime Trade Operations, there have been “9 attacks already this month, which is half of September’s total.” They highlight that this sharp increase in incidents underscores the growing vulnerability of tanker traffic through the key chokepoint and is helping to sustain the recent firming in Brent prices, even in the face of coordinated reserve releases by the G7. In turn, DBS argues that sentiment towards Oil-sensitive Asian currencies such as INR, IDR and THB is likely to remain soft against this backdrop of heightened geopolitical tension and supply-route disruption.
Technical Analysis:
In the daily chart, GBP/USD trades at 1.3210, keeping a bearish near-term tone as price holds below both the short-term nine-period exponential moving average (EMA) at 1.3243 and the medium-term 50-period EMA at 1.3379. The alignment of these EMAs above spot suggests upside remains capped, while the Relative Strength Index (14) at 36.16 hovers just above oversold territory, hinting at persistent but not extreme selling pressure.
On the topside, immediate resistance is seen at the nine-period EMA near 1.3243, followed by a more significant barrier at the 50-period EMA around 1.3379, where any recovery would likely stall unless momentum improves markedly. With no clear technical support levels derived from the current dataset, the pair appears vulnerable to further downside, leaving traders focused on intraday price action and sentiment shifts for potential stabilization signals.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
Mitrade makes no representation or warranty as to the accuracy or completeness of the information provided and accepts no liability for any loss arising from reliance on such information.
Recommended Articles
