Forex News
- USD/CAD weakens to around 1.4075 in Friday’s early European session.
- Bullish bias of the pair prevails above the 100-day SMA, but further consolidation cannot be ruled out with neutral RSI momentum.
- The immediate resistance level is located at 1.4130; the initial support level is seen at 1.4000.
The USD/CAD pair trades in negative territory near 1.4075 during the early European trading hours on Friday. Escalating conflicts in the Middle East boost crude oil prices, supporting the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD).
Oil prices spiked after Yemen’s Iran-backed Houthi rebels attacked oil tankers in the Red Sea, threatening a key export route that Saudi Arabia has used to bypass the Strait of Hormuz. US President Donald Trump said that the US would hold Iran responsible for the Houthis’ actions and warned that Iran and its Houthi allies would both soon receive a “major military punishment.”
It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Loonie.
The preliminary readings of the US S&P Global Purchasing Managers Index (PMI) will be in the spotlight later on Friday. If the report shows stronger-than-expected outcomes, this could help limit the Greenback’s losses in the near term.
Technical Analysis:
In the daily chart, USD/CAD keeps the bullish vibe, with the price holding above the 100-day Simple Moving Average (SMA). However, the pair slips back under the 20-day Bollinger SMA, signaling a loss of immediate topside traction after the recent spike. The 14-day Relative Strength Index at 47.9 sits just below the midline, hinting at directionless momentum in the near term as neither bulls nor bears currently dominate.
On the topside, initial resistance is aligned with the 20-day Bollinger SMA around 1.4130, ahead of a stronger barrier at the upper Bollinger Band near 1.4262. On the downside, the lower Bollinger Band at approximately 1.4000 offers the first line of support, with the 100-day SMA at 1.3875 reinforcing a deeper demand zone if selling pressure extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Us trade comments ease concern over Canada tariffs
Strategists at Scotiabank highlight a more constructive tone from US officials on the latest tariff measures, noting that US Trade Representative Greer “offered some hope that the latest tariff blast from Washington would not undermine US/Canada trade relations in the long run and that talks could make progress towards a broader agreement before year-end.” This, they suggest, helps temper market anxiety around the bilateral trade outlook even as currency markets continue to track the broader US Dollar trend.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
European Central Bank (ECB) Governing Council member Martin Kocher said on Friday that he doesn’t see any hard evidence of second-round effects, but the central bank will act if the inflation outlook deteriorates.
Meanwhile, Slovenian central bank chief Primož Dolenc said that the risks ahead remain high, adding that developments around the war in Iran reinforce the adverse risk.
Key quotes from ECB’s Kocher
Recent developments in oil markets are concerning.
ECB is in a position to be vigilant for the next couple of weeks.
I don't see any hard evidence of second-round effects.
ECB will act if inflation outlook deteriorates.
Growth forecast isn't great, but don't see a recession.
Market reaction
At the time of writing, the EUR/USD pair is up 0.11% on the day to trade at 1.1385.
Kocher flags conditional tightening risk as inflation vigilance rises
Kocher’s 6.2/10 FXS Speechtracker score sits slightly below the 6.4/10 historic average, but the emphasis on acting “if the inflation outlook becomes worse” marks a mildly hawkish tilt versus recent communication. The focus on deteriorating medium-term inflation expectations, concern over oil market developments, and the pledge that the ECB “will act if the inflation outlook deteriorates” all reinforce a conditional tightening bias that can underpin the Euro on upside inflation surprises.
At the same time, the remark that there is “no hard evidence of second-round effects” and that growth is weak but not recessionary tempers the hawkishness, suggesting no rush to hike absent a clear shock. For FX, this mix of vigilance and patience implies the Euro may trade with a modest upside skew on inflation data and oil-driven repricing, but without a strong catalyst for a sustained repricing of the ECB path in the immediate term.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- The Euro gains further as the British Pound weakens despite upbeat UK Retail Sales data for June.
- UK Retail Sales surprisingly rise 1% MoM in June vs. -0.3% estimates.
- Investors await the preliminary UK, Germany, and Eurozone PMI data for July.
The Euro (EUR) rallies further against the British Pound (GBP) as the latter weakens despite upbeat United Kingdom (UK) Retail Sales data for June. The EUR/GBP pair jumps to near 0.8550 in the European trading session on Friday, the highest level seen in two weeks.
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.11% | -0.05% | -0.05% | -0.06% | -0.16% | -0.15% | 0.01% | |
| EUR | 0.11% | 0.02% | 0.02% | 0.00% | -0.11% | -0.10% | 0.07% | |
| GBP | 0.05% | -0.02% | 0.00% | -0.02% | -0.12% | -0.09% | 0.05% | |
| JPY | 0.05% | -0.02% | 0.00% | -0.01% | -0.12% | -0.12% | 0.04% | |
| CAD | 0.06% | 0.00% | 0.02% | 0.00% | -0.12% | -0.12% | 0.05% | |
| AUD | 0.16% | 0.11% | 0.12% | 0.12% | 0.12% | 0.00% | 0.14% | |
| NZD | 0.15% | 0.10% | 0.09% | 0.12% | 0.12% | -0.01% | 0.16% | |
| CHF | -0.01% | -0.07% | -0.05% | -0.04% | -0.05% | -0.14% | -0.16% |
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 Office for National Statistics (ONS) has reported that Retail Sales, a key measure of consumer spending, rose strongly by 1% Month-on-Month (MoM), while it was expected to decline by 0.3%. In May, the consumer spending measure grew by 1.2%.
On an annualized basis, the Retail Sales unexpectedly grew at a stronger pace of 4.2%. The consumer spending measure was estimated to have risen at a moderate pace of 2.3% from the previous reading of 3.5%, revised higher from 3.2%.
Signs of strong UK Retail Sales data will likely prompt Bank of England (BoE) interest rate hike expectations for the near term.
Meanwhile, investors brace for more volatility in the British currency as the preliminary S&P Global Purchasing Managers’ Index (PMI) data for July is scheduled to be published at 08:30 GMT. The UK Composite PMI is expected to arrive slightly higher at 49.7 from 49.3 in June; however, a figure below 50.0 is considered a contraction in business activity.
Investors also await German and Eurozone flash PMI data for July, which will be published during the day.
On the monetary policy front, the European Central Bank (ECB) left interest rates unchanged on Thursday, as expected, and warned that the energy shock will keep feeding into higher prices.
Economic Indicator
S&P Global Composite PMI
The Composite Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging private-business activity in UK for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the UK private economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for GBP.
Read more.Next release: Fri Jul 24, 2026 08:30 (Prel)
Frequency: Monthly
Consensus: 49.7
Previous: 49.3
Source: S&P Global
Lloyd Chan at MUFG notes that US rate expectations remain volatile, with markets now pricing further Federal Reserve (Fed) tightening this year. Rising Treasury yields have pushed the US Dollar (USD) higher, lifting the US Dollar Index (DXY). Next week’s Federal Open Market Committee (FOMC) meeting is seen as pivotal as investors await Chair Kevin Warsh’s guidance on whether to validate or challenge the market’s hawkish repricing.
Rising yields and Fed pricing support Dollar
"US rate expectations have remained volatile."
"Markets are now pricing around 44 bps of cumulative Fed tightening this year, with a September 25bps rate hike fully priced, after briefly scaling back hawkish expectations following softer-than-expected June CPI data."
"Treasury yields have continued to move higher, with the 2-year yield rising 5bps to 4.35%, its highest level since early 2025, while the 10-year yield has climbed 4bps to 4.69%."
"The rise in yields has supported the US dollar, with the DXY index gaining 0.3% to 101.44."
"Next week’s FOMC meeting will be pivotal, as investors look to Fed Chair Kevin Warsh for guidance on whether the Fed will validate the market’s hawkish repricing or push back against expectations of tightening."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
OCBC’s Sim Moh Siong and Christopher Wong note Gold has retreated back toward USD 4,040/4,050 after briefly trading above 4,160 as Brent surged past USD100 and the Dollar and US yields climbed. They say Gold’s tentative recoupling with geopolitical risk remains fragile, with the metal still trading mainly through the Oil and rates channel and facing two-way risks around nearby support and resistance.
Geopolitics outweighed by Oil and yields
"Gold was unable to sustain its recent rebound, falling back toward 4040/50 levels after briefly trading above 4160 in the previous session."
"Gold fell back toward 4,040/50 levels as Brent broke above USD100 and both the USD and US yields moved higher, suggesting its tentative recoupling with geopolitical risk was not yet durable."
"Rather than benefiting from the renewed geopolitical risk, gold once again traded through the oil/rates channel."
"Losses were also broad-based across the precious metals complex, as silver, platinum and palladium fell. The reversal suggests the earlier signs of gold recoupling with geopolitical risk were not yet durable, with the metal remaining sensitive to further increases in oil, yields and rate expectations."
"Mild bullish momentum on daily chart intact but RSI fell. 2-way risks. Resistance at 4070 (21 DMA), 4167. Support at 4000, 3960 levels."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/IDR may rise as Bank Indonesia unexpectedly held rates at 5.75% in July.
- The US Dollar loses ground despite rising safe-haven demand amid escalating Middle East tensions.
- CME FedWatch tool shows a 35.8% chance of a July Fed hike and an 82.1% probability for September.
USD/IDR depreciates after registering over 0.5% gains in the previous day, trading around 18,020 during the Asian hours on Friday. However, the pair may see upward momentum following Bank Indonesia's (BI) unexpected decision to hold its benchmark interest rate steady at 5.75% in July. Rather than opting for further rate hikes to support the currency, the central bank has chosen to focus on targeted currency stabilization measures.
Meanwhile, proposed defense spending cuts are intended to reinforce Indonesia’s broader fiscal health. However, these gains may be offset by rising global oil prices, which continue to put a ceiling on the rupiah's potential upside by driving up inflationary pressures.
The USD/IDR pair holds losses as the US Dollar (USD) struggles despite rising safe-haven demand due to escalating conflicts in the Middle East. US-Iran conflict pushes crude oil prices higher. An oil-driven inflation spike has fueled expectations that the US Federal Reserve (Fed) might resume raising interest rates.
According to the CME FedWatch tool, money markets are currently pricing in roughly a 35.8% chance of a Fed rate hike this month, alongside an 82.1% probability of at least a quarter-point hike in September.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
ING analysts Warren Patterson and Ewa Manthey note that Brent has broken above $100/bbl as Middle East tensions escalate and supply risks mount. They highlight threats to flows through the Strait of Hormuz and the Red Sea, as well as disruptions to Kazakh exports. The authors argue that, without de-escalation, Oil prices are likely to move higher, with $120/bbl a potential trigger for US political pressure.
Escalating conflict underpins Brent strength
"Oil prices surged yesterday, with ICE Brent breaking above $100/bbl for the first time since May. Further escalation in the Persian Gulf and fears of a widening conflict are putting a significant amount of oil supply at risk. Houthi attacks on Saudi vessels in the Red Sea have the potential to widen this conflict, leading to further escalation."
"The potential supply disruptions facing the market now are larger than at any time during the war. Not only have oil flows through the Strait of Hormuz essentially dried up, but there are clear risks to Saudi oil flows from the Red Sea."
"In June, Saudi crude oil exports from Yanbu in the Red Sea averaged roughly 4.6m b/d. In addition, we’re seeing disruptions to Kazakh oil flows from the CPC terminal in Russia, amid alleged Ukrainian attacks on tankers. Export volumes from this terminal in recent months have exceeded 1.7m b/d."
"With little-to-no sign of de-escalation, the market is likely to take the path of least resistance for now. This suggests oil prices will only continue to move higher. The key question is at what price level pressure begins to build on the Trump administration to return to the negotiating table."
"If Trump’s previous spikes during the early stages of the war are any guide, pressure to de-escalate will likely grow significantly if, and when, Brent nears $120/bbl. For Iran, it’s less about where oil prices are trading (in fact, Iran will want to push prices as high as possible) and more about how long they can endure a collapse in oil revenues amid the US blockade."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The Australian Dollar edges up to around 0.6976 against the US Dollar; the outlook remains uncertain.
- Surging oil prices have revived hawkish Fed interest rate prospects.
- Preliminary Australian S&P Global PMI arrives higher at 52.6 in July.
The Australian Dollar (AUD) trades marginally higher at around 0.6976 against the US Dollar (USD) during the European trading session on Friday. The Aussie pair edges up, but is broadly weak, as surging US Treasury yields due to the revival of hawkish Federal Reserve (Fed) interest rate expectations dampens investors’ risk appetite.
As of writing, 10-year US Treasury Yields trade firmly at around 4.70%, the highest level seen in over 18 months. S&P 500 futures trade cautiously near Thursday’s low at around 7,404, reflecting a risk-off market mood.
According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the policy meeting next week stand at 33.7%, significantly higher than 11.8% recorded last week. Fed’s interest rate hike prospects were also higher at around 34% a month ago, but they eased later after the release of the soft US Consumer Price Index (CPI) data for June.
Surging oil prices due to risks of a prolonged closure of the Strait of Hormuz and the Bab el-Mandeb Strait, critical chokepoints that are collectively responsible for 27% of global energy supply, have boosted inflation projections, a scenario that forces central banks to advocate tight monetary conditions.
Higher US bond yields have also strengthened the US Dollar. At press time, the US Dollar index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near the three-week high at around 101.50.
On the domestic front, Australian employment data for June and the flash S&P Global Purchasing Managers’ Index (PMI) data for July have come in stronger.
On Thursday, the labor market report showed that the economy created 76.3K fresh jobs, significantly higher than 44K in May. Earlier in the day, Australian Composite PMI arrived at 52.6, higher than 50.4 in June.
AUD/USD technical analysis
AUD/USD trades marginally higher at 0.6975, hovering right on the 20-period exponential moving average (EMA) at 0.6975, which acts as a pivotal line for the near-term trend.
The pair is consolidating after recovering from late-January lows, and the neutral stance is reinforced by the Relative Strength Index (RSI) holding just below the 50 mark around 49, hinting at balanced but still fragile momentum.
The Aussie pair might see a fresh upside towards 0.7100 if it breaks above the July 21 high at 0.7027. Looking down, the pair would be exposed to the June 30 low at 0.6865 once it breaks below the July 14 low at 0.6913
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
S&P Global Composite PMI
The Composite Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging private-business activity in Australia for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the Australian private economy is generally expanding, a bullish sign for the Australian Dollar (AUD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for AUD.
Read more.Last release: Thu Jul 23, 2026 23:00 (Prel)
Frequency: Monthly
Actual: 52.6
Consensus: -
Previous: 50.4
Source: S&P Global
UOB Global Economics & Markets Research reports that EUR/USD slipped 0.3% to 1.1377 as the Euro (EUR) weakened against the US Dollar (USD) despite the European Central Bank (ECB) leaving rates unchanged and President Lagarde acknowledging some calls for a hike. Markets interpret her comments and Bloomberg’s take as pointing to a bias toward further tightening, with September seen as a likely window for another move.
Lagarde hints at possible September move
"The European Central Bank’s (ECB) at its July monetary policy meeting, held its policy interest rates unchanged in a unanimous decision, as widely expected."
"And while the decision was unanimous, ECB President Lagarde told reporters that some colleagues raised the question of whether to act now and pledged to look closely at new data over the coming weeks."
"While the ECB stuck with its standard insistence on taking a “meeting-by-meeting” approach to setting monetary policy, Bloomberg noted the remarks amount to the clearest sign yet that policymakers are minded to keep tightening, not least with war flaring up again in the Middle East, and the Sep meeting is widely seen as a natural point to deliver another move, backed by new quarterly staff forecasts, inflation prints for the two prior months and more economic data including several business surveys."
"The euro also weakened against the USD, even as ECB Lagarde was seen to be signalling a potential tightening in the Sep meeting."
"The EUR/USD closed the session down at 1.1377 (from 1.1412), a 0.3% depreciation."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Retail Sales, a key measure of consumer spending, in the United Kingdom (UK) climbed 1.0% month-over-month (MoM) in June after rising by 1.2% in May, the latest data published by the Office for National Statistics (ONS) showed on Friday.
The market forecast was for a 0.3% decline in the reported month.
The core Retail Sales, stripping the auto motor fuel sales, rose by 1.1% MoM in June, compared with the previous increase of 1.2% and the estimated -0.4% figure.
The annual Retail Sales in the UK came in at 4.2% in June versus a rise of 3.5% prior (revised from 3.2%) and 2.3% expectations.
The annual core Retail Sales jumped 5.4% in the same month, against May’s 4.9% (revised from 4.6%). The reading came in above the consensus of 3.2%.
Market reaction to the UK Retail Sales report
The British Pound edges slightly lower in an initial reaction to the softer UK Retail Sales data. The GBP/USD pair is trading 0.02% lower on the day at 1.3312, as of writing.
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, also known as ‘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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