The GBP/USD currency pair, popularly known as ‘Cable’, has crashed through the floor. If that holds, it would be its third consecutive day of declines. The pair rebuffed Thursday at the 50-day Exponential Moving Average (EMA) 1.3450 area. That failure attempt to blast bullishly into the 1.3600 handle last week. This disappointment has thus resulted in a long consistent depreciation in worth. Beyond that, the foreign exchange market is focused on broader economic and geopolitical issues. Trader sentiment has been playing a critical role lately, affecting this historically important currency pair.
GBP/USD accounts for 11% of the foreign exchange market. On Tuesday, it closed down by nearly three-tenths of a percent. Cable traders are bouncing about in advance of Thursday’s PMI index, set to show results of the latest survey. These indicators are key for understanding economic performance in the United Kingdom and the United States. Consider the key UK economic data that leads into this drop. The recent CPI-Consumer Price Index – inflation figures have spooked bidders in the Cable market.
Historical Context of GBP/USD
The Pound Sterling (GBP) carries an illustrious lineage in monetary legacy. It is the world’s oldest currency in continuous use today, tracing its origins back to 886 AD. It is a territorial unit of the United Kingdom, where pound sterling is the official currency. Furthermore, it is the fourth most-traded currency in the international foreign exchange market, accounting for about 12% of all trades. Despite its turbulent performance in 2022, the Pound Sterling averaged an equally astounding $630 billion in daily trading volume.
This historical magnitude reinforces why GBP/USD plays such a large role in global economics. When traders focus on movements in this important currency pair, they are sometimes driven by domestic factors, but many times driven by global factors. The volatility serves as a reminder of just how sensitive GBP/USD remains to economic data and geopolitical news.
Recent Market Movements and Technical Analysis
The drop of GBP/USD over the last few days is a symptom of the larger market malaise. After having not managed to push above the 1.3600 resistance last week, the pair has continued to drop in a stable fashion. On Tuesday interpreters on forex markets prodded GBP/USD back 0.3%, pushing it back down into key technical levels that traders are attuned to.
Equities Technical analysis shows the recent pullback into the 50-day EMA to just under 1.3450 is the make or break point for traders. Thus, many will view this recent drop as a testing ground for support. The inability to sustain upward momentum has soured the mood, sending many market participants running for the hills and forcing others to rethink their theses.
As traders continue to react to this volatile stage, they’ve been especially tuned in to major economic reports. The PMI figures due out Thursday should provide some useful context about what’s going on in the manufacturing and service sectors on both sides of the Atlantic. These revelations are likely to increase or dispel the prevailing bearish mood around GBP/USD.
Economic Indicators and Their Impact
Economic data releases are an important factor in the trader expectation-action cycle. Last week’s explosive CPI inflation data out of the UK rattled the market, forcing many GBP/USD bidders to rethink their positioning. Apart from monetary policy, inflation continues to be at the forefront of investors’ minds as expectations can shape central bank guidance and broader economic conditions.
Analysts expect that UK PMI figures to come in a touch higher, possibly providing a ray of hope for GBP/USD. If these numbers beat expectations, it could bring about renewed confidence with investors and traders, helping to mitigate some of these losses pieced together in recent memory.
A disappointing set of PMI results will increase concern over the UK’s economic prospects. This, in turn, would likely create additional near term selling pressure on GBP/USD. Traders are especially sensitive to this because such data can have a very real and immediate impact on currency valuations.