Pound reaches its highest since mid-September on Iran talks

GBP/USD breaks above its October highs and trades over the 200-day average.
The Dollar falls with Crude Oil, and ING says the gain owes little to the UK.
The BoE is forecast to raise Bank Rate to 4% on Thursday, on a 7-2 vote.

Crude Oil has fallen on hopes for a US-Iran deal, and the Dollar has fallen with it, which has put GBP/USD at its highest since mid-September. The pair climbed to just under 1.3450, then gave back about two-thirds of the climb from its session low. It has stayed in the lower half of the day's range since.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

After reports that President Trump wants diplomacy with Iran to run its course, Crude Oil fell and traders dropped Friday's bets on a weekend attack. Qatari mediators are heading to Tehran for talks on a draft US-Iran deal, according to an official briefed on the talks. The Dollar has fallen alongside Crude Oil, and ING said the Pound's rise owes more to that than to anything in the UK.

Crude Oil's drop more than doubled after the Pound's high as President Trump said an Iran deal could happen, and GBP/USD has traded between 1.3400 and 1.3450 since. The Institute for Supply Management (ISM) manufacturing index came in at 55.5 against a 54.6 forecast, and the pair didn't move on the release either.

On the calendar

The Bank of England (BoE) announces its decision at 12:00 GMT on Thursday, with a rise in the UK's Bank Rate to 4% from 3.75% forecast on a 7-2 vote. The last vote was 6-3 to hold. A hike is fully priced, so the split and BoE Governor Bailey's remarks at 12:30 GMT are what isn't in the price yet.

US voters go to the polls in the midterm elections on Tuesday, and October Nonfarm Payrolls (NFP) come at 13:30 GMT on Friday, forecast at 65K after 29K. Cleveland Fed President Hammack, one of two Fed voters who backed a hike on October 28, speaks at 13:50 GMT on Thursday. The jobs report and her remarks bear on whether the Fed follows that hold with a hike.

On the charts

GBP/USD has won back about half of its drop from the late-August high short of 1.3700 to the October 14 low just under 1.3150. It's above the 50-day Exponential Moving Average (EMA) near 1.3350 and the 200-day near 1.3400, where it stalled around October 22. Daily momentum has been overbought since around October 20 and has started to cool.

GBP/USD 5-minute chart

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.