Pound climbs on a weaker Dollar and a UK growth surprise
- GBP/USD climbs through 1.3250 to its highest level since October 6.
- 54 of 63 economists polled now expect a BoE hike to 4.00% in November.
- BoE Governor Bailey is in Bangkok on Friday, and UK inflation is due October 21.
A weaker Dollar gave GBP/USD the first part of its climb, and a run of UK news gave it the rest. The pair rose through 1.3250 to its highest since October 6, and its only real setback came on the US releases.
The UK economy grew 0.1% in August against a forecast 0.1% contraction, with factory output up 1.2% where a 0.1% fall was forecast, and GBP/USD barely moved on the release. It has climbed since while EUR/USD has been nearly flat, which makes that part of the gain the Pound's own and has taken EUR/GBP back below 0.8450.
Of 63 economists polled October 12-14, 54 now expect the Bank of England (BoE) to lift the UK's Bank Rate to 4.00% in November. A month earlier, about nine in ten expected no move for the rest of 2026. A hike would put the UK back level with the top of the Fed's 3.75%-4.00% range and erase the gap the Fed's September 16 hike opened in the Dollar's favour.
On the calendar
BoE Governor Bailey speaks in Bangkok at 02:00 GMT on Friday, with Fed Chair Warsh following there at 03:30 GMT in his last scheduled appearance before the Fed's October 28 decision. A BoE hike on November 5 is almost fully priced, and traders put the Fed's next hike in December.
UK jobs figures are due at 06:00 GMT on Tuesday, October 20, after a 4.9% unemployment rate in the last release. September inflation follows at 06:00 GMT on Wednesday, October 21, after 3.1% in August. Retail sales at 06:00 GMT and the business surveys at 08:30 GMT come on Friday, October 23, all before the BoE's November 5 decision.
On the charts
Thursday's bar runs from near the bottom of the 1.3200-1.3300 range GBP/USD has held since September 24 to near its top. Wednesday's 11-month low just under 1.3150 is the deepest point of the slide from just under 1.3700 on August 21, and Thursday's high has made back roughly a quarter of it. The 50-day Exponential Moving Average (EMA) is near 1.3350, above the whole range.
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.
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.
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