A pullback in investment could signal cost-saving efforts and slower job creation rates. Softer labor market conditions could affect wage growth, household spending, and demand-driven inflation.
Later in the morning session, finalized Jibun Bank Manufacturing PMI numbers also need consideration. According to the preliminary PMI survey, the Manufacturing PMI increased by 49.6 to 50.5 in May. Upward revisions to the PMI could signal an improving demand environment. Nevertheless, the Manufacturing PMI will unlikely influence the Bank of Japan rate path.
The services sector, household spending, and inflation are the focal points vis-a-vis monetary policy.
Beyond the numbers, investors should monitor Bank of Japan commentary. After the hotter-than-expected inflation numbers for Tokyo, views on the timing of an interest rate hike would move the dial.
US Economic Calendar: Manufacturing PMIs in Focus
Later in the Monday session, the US ISM Manufacturing PMI needs consideration. Economists forecast the ISM Manufacturing PMI to increase from 49.2 to 49.8 in May. Better-than-expected numbers would support expectations of a soft US landing.
Nevertheless, the PMI numbers will unlikely influence the Fed rate path. The manufacturing sector accounts for less than 30% of the US economy.
Wednesday’s trading session witnessed a slight dip in the British pound, although we recovered enough to be essentially unchanged.
Traders are fixed upon the pivotal support level of 1.2650, a historical juncture that has demonstrated its significance in the past. Nestled strategically between the 50-Day Exponential Moving Average and the 200-Day EMA, this support region exudes resilience, potentially setting the stage for a rebound.
Adding to the appeal of this zone is the proximity of the uptrend line, which aligns with the region. This confluence of factors renders the area particularly enticing for traders seeking potential buying opportunities. A decisive breach above 1.2785 might herald further upward movement, with aspirations potentially reaching the psychological threshold of 1.30—a level known to captivate trader attention and influence market dynamics.
Presently, the pound remains ensconced within an overarching uptrend, which poses challenges to those considering overly aggressive bearish positions. However, caution remains the watchword, as a breach below the 200-Day EMA could signal a possible extension of downside potential.
The heartbeat of the British pound’s trajectory resonates with the actions of the Bank of England, whose response to inflation concerns significantly influences market sentiment. In a parallel vein, the United States’ Federal Reserve grapples with its own inflationary pressures. This shared narrative of combating inflation might pave the way for sustained strength in both the pound and the US dollar, subsequently contributing to the prevailing consolidation phase.
Within this complex landscape, market participants are poised to experience bouts of heightened volatility and wavering decisions. The ongoing tussle between discerning the next course of action and gauging potential market trends adds to the environment’s uncertainty. The interplay between these major central banks injects an element of volatility that is conducive to a consolidation phase.
As the horizon unfolds, traders will intently follow the evolution of central bank policies and key economic indicators. A significant shift in monetary strategies could serve as the long-awaited catalyst, potentially triggering a breakout from the existing consolidation pattern.
In the midst of Wednesday’s trading session, the British pound finds itself treading the waters of a consolidation phase. With the 1.2650 support level as a cornerstone, bolstered by the presence of the 50-Day EMA and the 200-Day EMA, the potential for a resurgence gains prominence. A breakthrough above 1.2785 could usher in a fresh wave of upward momentum, aimed at breaching the pivotal 1.30 mark. However, the pound’s trajectory remains enigmatic, tethered to the ongoing inflation considerations faced by the Bank of England and the Federal Reserve.
For a look at all of today’s economic events, check out our economic calendar.
The British pound has fallen initially against the Japanese yen on Thursday, but continues to find plenty of support underneath keep the market somewhat afloat. Because of this, I think that the 180 level continues to be a major influence on the market, and therefore I would be cautious about getting overly bearish. This isn’t to say that we can’t break down, just that the market is likely to continue seeing this area as important.
The jobs number on Friday will probably have a lot to say about where we go next from a risk appetite standpoint, and of course this pair is highly sensitive to risk appetite so you need to be cautious about that. With that being the case, I think this is a scenario where if we break down below the massive candlestick on Tuesday, it could open up the floodgates and the British pound could go looking toward the ¥175 region. This is also where the 200-Day EMA is hanging around, so it all ties together quite nicely.
With that being said, the upside features the 50-Day EMA getting in the way, so that is something worth paying attention to as well. If we can break above that level, then it’s likely that we go looking toward the ¥185 level. Keep in mind that the British pound is a very sickly looking currency, but we also have the Japanese yen in this equation, and the fact that the Bank of Japan can do nothing to raise rates.
Ultimately, the interest rate differential still favors the United Kingdom, but there’s also the possibility that the UK will have to start cutting rates much quicker than other currencies due to the fact that the European Union is likely to head into a recession, and this of course can produce a bit of a “knock on effect” in the UK itself. With that being the case, I think that the British pound will continue to underperform many other currencies against the Japanese yen, but regardless, I have no interest whatsoever in shorting this market.
For a look at all of today’s economic events, check out our economic calendar.
The US dollar has rallied a bit during the trading session on Tuesday to threaten the ¥135 level. This is an area that has been both support and resistance recently, and therefore will have a certain amount of market memory attached to it. Furthermore, the market also is taking into account the Bank of Japan and its yield curve control, recognizing that in order to see yields in the 10 year Japanese Government Bond stay underneath 50 basis points, they may have to buy an unlimited amount. In order for the central bank to buy an unlimited amount of bonds, that means they will have to print currency. By doing so, they flood the market with Japanese yen, driving down the value of it.
Underneath, we have the 200-Day EMA, and the 50-Day EMA indicator as well, looking very likely to cross over yet again. If we can stay above these 2 moving averages, it’s very likely that we will continue to see upward pressure. Eventually, if we can break above the ¥135 level, I suspect that this market is looking to the ¥137.50 level, an area that had seen a lot of selling pressure previously. Anything above there could open up the floodgates for a much bigger move.
At this point, it looks as if the trend is in the process of changing, but this is normally a very messy affair, especially when it involves the Japanese yen. That being said, I still think this has a bit of a “buy on the dips” feel to it, so therefore I will be looking for signs of pullbacks that have buyers coming back in to support the market.
For a look at all of today’s economic events, check out our economic calendar.
The British pound has initially tried to rally during the trading session on Wednesday but gave back some of the gains as we continue to see a lot of choppy consolidation. The ¥170 level is a large, round, psychologically significant figure, and therefore attracts a lot of attention, and it is offering short-term support underneath. At this point, I think it’s probably only a matter of time before the market continues to figure out what it wants to do, and in the meantime, it will be very noisy. Ultimately, this is a market that has seen a lot of momentum thrown into it, and that does make a certain amount of sense considering that the Bank of Japan has done everything it can to keep interest rates down, meaning that they are printing yen. By contrast, the Bank of England is very tight with its monetary policy, so it does make a certain amount of sense at this market has continued to see buyers.
Short-term pullbacks continue to be buying opportunities from what I can see, with the ¥168 level underneath being a major support level. The 50-Day EMA sits right around the ¥166 level and is rising. All things being equal, this is a market that I think is very noisy, but still favors the upside overall. I don’t have any interest in shorting this market, as it has been so bullish for so long. All things being equal, this is a market that I think continues to see a lot of volatility, but that’s nothing new for this pair.
Make sure that you keep your position size reasonable, with the reality being that this is an extraordinarily volatile pair under the best of circumstances, and at this juncture it’s likely that we will continue to see a lot of questions asked of risk appetite. Because of this, you need to be cautious, but it’s clearly a market that still has more upward pressure than down, so that’s the way you need to approach it. If we can break above the ¥172.50 level, this pair could take off to reach the ¥175 level.
For a look at all of today’s economic events, check out our economic calendar.
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The British pound has fallen rather hard during the early hours on Thursday against the Japanese yen as we continue to see a lot of volatility.
We had hit the recent highs that the Bank of Japan pushback on, and therefore we may have seen little bit of profit-taking in a market that had gone essentially vertical.
Because of this, it should not be a huge surprise to see that we do pull back, and most traders will probably look at this as a potential value play just waiting to happen.
Looking at the GBP/JPY currency pair, I think there are plenty of areas you might get to see massive support, which of course would start with the ¥199 level which has been tested during the day. So far, the ¥199 level has proven itself to be at least somewhat interesting, so I think a lot of people will be looking at this through the prism of a potential short-term support level, but even if we break down below there I think you need to look at the ¥197.50 level as an area that could be supported as well. With this, I believe that you are looking for dips to take advantage of.
Interest rate differential
This is all about the interest rate differential still, as the Bank of Japan cannot do anything to tighten monetary policy, and therefore you continue to get paid at the end of every session. This is a particularly wide interest rate differential, and it’s very likely that he continues to be so. However, I do believe that there is a certain amount of psychology attached to the recent high when the Bank of Japan came in and flooded the market, but if we can break to a fresh, new high, there’s no reason that the GBP/JPY pair will be able to go to the ¥205 level.
I have no interest whatsoever in trying to get short this pair, because not only are you “swimming upstream”, but you are also paying for the privilege to do so. With that, I am looking at these pullbacks as a potential buying opportunity going forward.
The Euro rallied just a bit during the trading session on Thursday, as we continue to pay close attention to the 0.85 level.
The 0.85 level of course is an area that a lot of people will be watching, as it historically has been important, but we also have a lot of psychology attached to a big round figure like this.
In general, I think you have to look at this pair as one that is testing a major support level that needs to be acknowledged.
That being said, both of these central banks could cause a bit of a headache, and therefore you need to understand that both may be loose going forward. If that’s going to be the case, then it’s very likely that we could see a situation where we just chop around. That is normal for the EUR/GBP currency pair, not only due to the fact that quite often both central banks have similar monetary policies, but the fact that there is so much cross-border trade between the European Union in the United Kingdom, despite the fact that we were told that the Brexit vote would destroy everything.
Looking for Momentum
At this point, I think we are more or less looking for momentum, and that is something that needs to be acknowledged. If we get any type of momentum at this point in time, I think we could get a situation where traders will jump in and start buying the euro. This will be especially true if the ECB decides to hold on its rate cuts that everybody seems to be waiting for in July. In other words, these are somewhat precarious times that we are dealing with, and in this environment, I think it is very difficult to get overly aggressive, but recognize that if you were to short this market right now, you are betting on a break down that hasn’t been seen for years.
On the upside, we probably struggle to get anywhere above the 0.86 level, so I look at this is a market that’s been consolidating for some time, and that we are at the bottom of the trading range. Nothing more, nothing less.
GBP/USD holds above 1.2700, struggles to build on Thursday’s gains.
April PCE inflation data from the US could drive the pair’s action.
Technical sellers could take action if GBP/USD slumps below 1.2700.
GBP/USD benefited from the selling pressure surrounding the US Dollar (USD) and closed the day in positive territory on Thursday. Although the pair manages to hold above 1.2700 in the European session on Friday, it struggles to extend its recovery ahead of key inflation data from the US.
The US Bureau of Economic Analysis (BEA) announced on Thursday that it revised the annualized Gross Domestic Product (GDP) growth for the first quarter lower to 1.3% from 1.6% in the first estimate. The benchmark 10-year US Treasury bond yield turned south and lost more than 1% on the day after the GDP data, causing the USD to stay weak against its major rivals.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the Swiss Franc.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
0.10%
0.17%
0.13%
-0.09%
-0.22%
-0.23%
-0.94%
EUR
-0.10%
0.04%
0.05%
-0.20%
-0.39%
-0.42%
-1.02%
GBP
-0.17%
-0.04%
-0.06%
-0.27%
-0.42%
-0.40%
-1.09%
JPY
-0.13%
-0.05%
0.06%
-0.25%
-0.36%
-0.26%
-1.10%
CAD
0.09%
0.20%
0.27%
0.25%
-0.15%
-0.13%
-0.91%
AUD
0.22%
0.39%
0.42%
0.36%
0.15%
0.05%
-0.67%
NZD
0.23%
0.42%
0.40%
0.26%
0.13%
-0.05%
-0.73%
CHF
0.94%
1.02%
1.09%
1.10%
0.91%
0.67%
0.73%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The BEA will publish the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve’s (Fed) preferred gauge of inflation, for April later in the day. Investors will pay close attention to the monthly core PCE Price Index reading, which excludes volatile food and energy prices and doesn’t get distorted by base effects.
Markets expect the core PCE Price Index to rise 0.3% in April, matching March’s increase. According to the CME FedWatch Tool, the probability of a 25 basis points Fed rate cut in September currently stands at about 50%. A monthly increase of 0.4%, or bigger, in the monthly core PCE Price Index could feed into expectations for a Fed policy hold in September and provide a boost to the USD. On the other hand, a smaller-than-forecast increase could weigh on the USD and open the door for a rebound in GBP/USD heading into the weekend.
GBP/USD Technical Analysis
The lower limit of the ascending regression channel coming from late April aligns as key support at 1.2700. A daily close below this level could attract technical sellers. In this scenario, the 20-day Simple Moving Average (SMA) could be seen as the next bearish target at 1.2650 before 1.2630 (100-day SMA).
On the upside, resistances are located at 1.2760-1.2770 (Fibonacci 78.6% retracement of the latest downtrend, mid-point of the ascending regression channel) and 1.2800 (psychological level, static level).
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, aka ‘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.
GBP/USD holds above 1.2700, struggles to build on Thursday’s gains.
April PCE inflation data from the US could drive the pair’s action.
Technical sellers could take action if GBP/USD slumps below 1.2700.
GBP/USD benefited from the selling pressure surrounding the US Dollar (USD) and closed the day in positive territory on Thursday. Although the pair manages to hold above 1.2700 in the European session on Friday, it struggles to extend its recovery ahead of key inflation data from the US.
The US Bureau of Economic Analysis (BEA) announced on Thursday that it revised the annualized Gross Domestic Product (GDP) growth for the first quarter lower to 1.3% from 1.6% in the first estimate. The benchmark 10-year US Treasury bond yield turned south and lost more than 1% on the day after the GDP data, causing the USD to stay weak against its major rivals.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the Swiss Franc.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
0.10%
0.17%
0.13%
-0.09%
-0.22%
-0.23%
-0.94%
EUR
-0.10%
0.04%
0.05%
-0.20%
-0.39%
-0.42%
-1.02%
GBP
-0.17%
-0.04%
-0.06%
-0.27%
-0.42%
-0.40%
-1.09%
JPY
-0.13%
-0.05%
0.06%
-0.25%
-0.36%
-0.26%
-1.10%
CAD
0.09%
0.20%
0.27%
0.25%
-0.15%
-0.13%
-0.91%
AUD
0.22%
0.39%
0.42%
0.36%
0.15%
0.05%
-0.67%
NZD
0.23%
0.42%
0.40%
0.26%
0.13%
-0.05%
-0.73%
CHF
0.94%
1.02%
1.09%
1.10%
0.91%
0.67%
0.73%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The BEA will publish the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve’s (Fed) preferred gauge of inflation, for April later in the day. Investors will pay close attention to the monthly core PCE Price Index reading, which excludes volatile food and energy prices and doesn’t get distorted by base effects.
Markets expect the core PCE Price Index to rise 0.3% in April, matching March’s increase. According to the CME FedWatch Tool, the probability of a 25 basis points Fed rate cut in September currently stands at about 50%. A monthly increase of 0.4%, or bigger, in the monthly core PCE Price Index could feed into expectations for a Fed policy hold in September and provide a boost to the USD. On the other hand, a smaller-than-forecast increase could weigh on the USD and open the door for a rebound in GBP/USD heading into the weekend.
GBP/USD Technical Analysis
The lower limit of the ascending regression channel coming from late April aligns as key support at 1.2700. A daily close below this level could attract technical sellers. In this scenario, the 20-day Simple Moving Average (SMA) could be seen as the next bearish target at 1.2650 before 1.2630 (100-day SMA).
On the upside, resistances are located at 1.2760-1.2770 (Fibonacci 78.6% retracement of the latest downtrend, mid-point of the ascending regression channel) and 1.2800 (psychological level, static level).
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, aka ‘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.
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