The Pound Sterling (GBP) is the oldest currency in the world, having been instituted in 886 AD. Currently, it is riding a bullish wave, around solidifying near the 1.3550 resistance level vs the American counterpart (GBP/USD). All of this happens with the backdrop of very consequential economic data releases rounding the corner headed potentially to change the currency’s trajectory. The GBP is the physical currency of Great Britain, which includes the United Kingdom. It plays an important role as a global financial center, comprising 12% of all foreign exchange transactions, averaging $630 billion in daily trading volume.
Traders and investors have sorely fixated on every flicker of key labor statistics. They’re especially looking forward to the inflation figures finalised and released in the next few days. Higher interest rates would increase the United Kingdom’s attractiveness to international investors thus reducing upward pressure on exchange rates. Accordingly, these indicators will remain pivotal in influencing the mood of the GBP. Next week’s data will bring expected jumps in new seekers of unemployment benefits and maybe even a deceleration of average earnings growth.
Economic Significance of the Pound Sterling
The Pound Sterling, the U.K.’s national currency, is therefore a bellwether for most of the developed world. Second, it is perhaps the most important player in today’s global financial architecture. It constantly fluctuates to be one of the top traded currencies in the world, with major pairs being GBP/USD, GBP/JPY, and EUR/GBP. The GBP/USD currency pair alone accounts for 11% of all foreign exchange transactions, demonstrating its significance as a tool for conducting international trade.
With an average daily transaction volume of $630 billion, the Pound Sterling further proves its liquid and attractive qualities to new traders. Even though it’s had a few rough scares lately – like being rejected from multi-year highs – it’s still showing a lot of strength. We see this clearly with the prices currently trading above the 200-day Exponential Moving Average (EMA) sitting around 1.2960.
Future economic data releases are key in deciding the GBP’s potential future direction. Analysts predict that increased interest rates would add to the currency’s strength, helping make it more attractive to foreign investors. This prospect has turned the market bullish on the Pound. It is holding up well, keeping a firm footing slightly over the 1.3500 mark in the very short-term.
Anticipated Labor Data and Inflation Figures
Meanwhile, the UK is about to drop some major labor market data. Analysts anticipate a jump in new unemployment benefit seekers, with the number projected to jump to 9.5K for May. At the same time, average earnings growth is expected to continue to slow to 5.4% over the quarter ending in April. These statistics are key to understanding the current situation in the UK labor market. They provide an interesting glimpse into consumer spending and the overall performance of the economy.
The Claimant Count Change is set to see a significant increase, leading to fears of an increasingly rocky economic road. Investors will continue to watch the tug-of-war in the labor market. Such adjustments can have a major impact on monetary policy actions taken by the Bank of England and, by extension, interest rates.
In May, the headline Consumer Price Index (CPI) inflation in the United States is about to spike. Economists now expect it to go above 2.5% year-on-year. This major development could prove influential for the GBP/USD currency pair. U.S. inflationary pressures will certainly continue to define interest rate expectations in both countries.
Current Market Trends for GBP/USD
At the time of writing, the GBP/USD pair is cautiously consolidating inside a recent range of highs and lows, probing waters around 1.3550. Traders have been cautiously optimistic looking ahead to the incoming economic data. They think this data has the potential to change the tenor of the market in a big way. Overall, though, the Pound is still bullish in spite of recent selloff. This is an indication that buyers are in aggressive chase mode looking for deals just under the multi-year high watermark.
Future labor statistics and inflation data will be key. More than anything, they’ll decide if this trend continues or if the market reverses course completely. Should the UK show signs of economic strength through robust labor data, it may further solidify the bullish outlook for the Pound Sterling.