Pound Sterling (GBP) is the official currency of the United Kingdom. Most recently, it has garnered headlines by making a big recovering turn against the US Dollar (USD). On Tuesday, GBP/USD rose four-tenths of one percent, closing the day 0.4% higher after breaking above the psychologically important 1.3400 round number. This rise comes amid increasing optimism regarding a potential trade deal between the US and the UK, which could alleviate trade tariffs previously pursued under the Trump administration.
Introduced in 886 AD, Pound Sterling is considered the oldest currency in continuous use. The British pound arguably represents the country’s deep financial tradition more than anything. It is an essential currency in the global foreign exchange market, being the fourth most traded currency in the world. Indeed, close to 12% of all foreign exchange transactions involve GBP. With an average of $630 billion traded daily, it serves as a magnet for risk-averse, return-seeking investors.
Performance of GBP/USD
Support for the GBP/USD currency pair, popularly nicknamed ‘Cable’ since the days of the Transatlantic undersea communication cable. It has conclusively held above the 200-day Exponential Moving Average (EMA) at ~1.2830. In fact, despite this rallying performance, market watchers caution that GBP/USD is presently caught in a bullish consolidation pattern between 1.3450 and 1.3250. Even with the bullish momentum, the currency pair continues to deal with headwinds. This range-bound movement illustrates the challenge of conquering major resistance levels.
FX traders have shortlisted the 1.3400 handle as a key level. Virtually every serious bidder is currently experiencing it, and struggling to clear this ceiling. The future of US-UK trade relations has been high for a US-UK trade deal. This enthusiasm has propelled the recent rally in GBP/USD and invigorated overall market sentiment. With strong negotiations, that can only boost the attractiveness of GBP to global investors.
Factors Influencing Investment Decisions
At least in terms of its attractiveness to foreign investors, higher UK interest rates have made Pound Sterling a bigger lure for foreign investors. As the Bank of England continues to adjust its monetary policy, the prospect of better returns on investments denominated in GBP draws attention from international markets. This unprecedented interest is further evidenced by the currency’s trading volumes and stability.
Besides GBP/USD, GBP/JPY is important for GBP—at 3% of FX transactions, it’s the fourth most popular currency pair in the world. At the same time, EUR/GBP adds another 2%. These pairs illustrate the overwhelming global demand for GBP and the central role it plays in facilitating international commerce and traded currency pairs. Investors are eager to diversify their portfolios and seek new opportunities by investing in these currencies. This strategy continues to replicate the GBP’s strong standing within the forex market.
Market Outlook and Future Prospects
With the negotiations for a possible US-UK free trade agreement still ongoing, investors have plenty of reason to be hopeful — but with caution. A winning agreement would not just strengthen GBP, but may help reset the trading relationship with the US for the better. Industry analysts are optimistic this will open up opportunities for better market trading environment for UK companies and investors to businesses and across the board.
Bearish GBP/USD risks Resistance at the 1.3400 figure and prevailing consolidation patterns continue to pose a challenge for the pair. Yet, the currency’s sense of the enduring is nothing short of remarkable. Market participants are understandably keeping a close eye on key economic indicators and geopolitical developments likely to impact trading conditions in the weeks ahead.