GBP/USD, or ‘Cable’ as it is nicknamed, has broken out of a three-day string of losses. It has found a modest technical bounce through the 1.3050 area. This rebound comes amid a broader investor wait-and-see attitude ahead of key economic releases that could move the currency pair dramatically. The Pound Sterling (GBP) is the fourth most traded currency in the world. It is responsible for almost 12% of all foreign exchange transactions, so it is one of the largest players in the world’s financial markets.
Thursday saw some recovery in GBP/USD, but the pair is still on the back foot, pressured below key long-term moving averages. Investors are being very cautiously optimistic but very careful as they still await some key information that might help establish the next directional move the market will take. The next expected UK figures will further support or conflict with prevailing market sentiment.
Economic Context for GBP/USD
The GBP/USD currency pair is one of the most important in the foreign exchange, representing approximately 11% of the total FX trading. The Pound Sterling has an impressive pedigree, being the oldest currency in continuous use in the world today. Its origins can be found as far back as 886 AD. Its importance to the international financial system is highlighted by an astonishing average daily transaction amount of $630 billion.
This is pulling in international capital as UK interest rates are among the highest in the developed world. The trend is creating a very bullish tone on the GBP. The market is on edge as big economic data releases loom. Investors are particularly focused on the UK S&P Global Purchasing Managers Index (PMI) activity survey results, which will be published at 09:30 GMT. Picture this — Market analysts are predicting a drop in the Manufacturing and Services components of the PMI. This should be a big cause for concern about the broader health of the UK economy.
Anticipated Data Releases
In addition to these notable fundamental factors, the major economic calendar event for Friday is equally important for GBP/USD traders. The release of monthly Retail Sales figures at 07:00 GMT is particularly noteworthy. Analysts predict these figures to drop down once more in October, likely indicative of consumer hesitancy amid larger economic uncertainties.
The expected better-than-forecast drop in Retail Sales should help foster a bearish sentiment around the GBP. Should the data confirm expectations, it might reinforce fears of slowing economic activity, thereby impacting GBP’s performance against the dollar and other currencies.
In addition, the PMI data will be vital in revealing what’s really happening in the business sector and the broader economy up and down the UK. A disappointing PMI reading would be a sign of contraction in major sectors, adding to the headwinds for GBP/USD outlook. The interaction between these personalities and market mood will be key in shaping Cable’s price action going forward.
Current Market Sentiment
Though GBP/USD has recently put in a technical bounce, sentiment heading into the new week is still overwhelmingly negative. The currency pair is still trading well below long-term moving averages, indicating that any upside movement should be short-lived. Traders are aware that strong overhead resistance is headed towards them. To their credit, they’re willing to proceed with caution as new data starts to flow.
Here’s hoping market participants are taking a breather as they consider their respective positions ahead of the most critical economic releases, though. Interest rate impact remains hugely influential, with higher interest rates boosting GBP attractiveness as has historically been the case. Anything bad could wash this all out and trigger more Cable value destruction.