GBP moves are affected by major economic data and speeches. There are other factors that move the GBP but we shall discuss the major 5
Important economic news that moves the gbp
1.Consumer price index
CPI measures the change in the price of consumable goods and services.
The CPI measures inflation in an economy relying on the cost of goods and services consumed per household in UK.
If the value of CPI is high, it is a sign of persistent rising prices which may result to inflation.
This calls for the Central Bank of England to take measures to regulate inflation back to its target for a stable economy.
In so doing, the BOE may opt for a raise in interest rates to curb down the inflation rate hence strengthening the GBP.
Conversely,
If the CPI is low, it shows slow development in the economy. This may call for cut of interest rates to encourage borrowing to boost domestic expenditure.
2. Unemployment rate
The unemployment rate measures the percentage of the number of people unemployed in UK but are willing to work and actively searching for jobs.
Unemployment is known as a lagging indicator when it comes to economic development.
When the rate of unemployment increases, it shows that many people in the UK have no jobs.
This reduces government revenue through reduction of taxes, increases government expenditure.
Hence a weak GBP
Again, people lose confidence in spending and instead opt to save for future uncertainties which slows down growth and economic development.
On the other hand,
When the rate of unemployment is less, it shows many people in employment which is a good sign for a health economy thus a strong GBP.
3. Gross domestic product
This measures the health of the economy hence greatly moves the GBP
It shows the country’s total value of final goods and services produced with in the country for a given period of time.
If GDP rises, the interest rates also tends to rise hence attracting more foreign investors to the country. As a result GBP appreciates in value.
On the contrary, When the GDP falls, it shows poor health of the economy which results to a fall in GBP value.
4. Purchasing managers index
When the purchasing managers index in UK reads above 50, it indicates an expansion in UK’s economy and when below its contraction.
The purchasing managers index measures the overall country’s companies’ performance and manufacturing conditions.
It does it by tracking data from companies’ managers regarding their performances every month.
When it is higher than expected it means a strong economy and therefore a strong GBP.
But when GDP less than expected it means the economy is weak and so a weak GBP.
5. Monetary policy
It is one of the BOE’s major role to implement monetary policy. The policy highly moves the GBP
Its objective is to make sure that the inflation rate stays with in the required targets to stabilize the currency’s confidence.
When inflation is getting beyond or below the required target range, the BOE uses the monetary policy tool to stabilize inflation.
Depending on any of the decisions taken, it affects/ moves the GBP.
The BOE implements monetary policy through changes in interest rates, open market operations or reserved bank requirements.
For example, A raise in interest rates restricts money circulation and makes GBP expensive hence rise in the value of GBP
Whereas the cut of the rate encourages loan borrowing and a lot of GBP in circulation hence fall in value.
Trading the GBP/USD
The GBP/USD is well-known for making strong movements among the other pairs.
This makes it a good pair to trade during the release of important economic news from the 2 economies.
GBP/USD and GBP//JPY are the most volatile pairs.
Therefore, as you look forward to catching strong movement, you must not forget to set big stop-loss levels so that you are not stopped out on short notice.
Getting to know the GBP
Great Britain Pound (GBP) the official currency of united kingdom.
It is the fourth most traded currency and the most held reserve currencies among the countries of the world.
GBP is sometimes called the sterling, cable, quid, nicker or Guppy.
It is one of the oldest currency in the world.
GBP Volatility
The GBP is highly volatile. When it comes to making strong moves it is number one.
Due to London’s active financial market, the economy is busy every day with lots of transactions going on as traders carry on their businesses.
GBP is one of the pairs you find with nice curves and clear patterns
The high liquidity in the currency pair makes it easy for traders to buy and or sell without difficulty.
Rather, it a bit hard an boring to trade in a less volatile market.
United Kingdom Facts and Figures
- Country Name: United Kingdom of Great Britain And Northern Ireland
- Short Form: United Kingdom
- Abbreviation: UK
- Government Type: Parliamentary Constitutional Monarchy; Common Wealth Realm
- Capital: London
- Independence: 12th april 1927
- Neighbors: Ireland, Germany, France
- Head of state: Queen Elizabeth II
- Prime Minister: Boris Johnson
- Currency: Great British Pound (GBP) or Pound Sterling
- Imports: 581.6 billion
- Exports: 412.1 billion
- Website:http://www.number10.gov.uk
- Major Cities : London, Birmingham, Manchester, Glasgow, Leeds, Liverpool, Newcastle
Monetary and fiscal policy moves the gbp
The Bank of England (BOE) takes care of the UK’s monetary policy through promoting monetary stability and maintaining low inflation .
BOE is the central bank of UK.
It is sometimes referred to as the old lady of thread needle street or the old lady.
The name was taken from the legend of Sarah white head, whose ghost is said to haunt the bank’s garden.
Though the BOE makes its own monetary policies, it is still owned by the UK government and it’s accountable to the parliament and the public.
Its main objectives are :
- To maintain price stability.
- Maintain low inflation as targeted at 2%.
- To support government economic development and stability.
The BOE monetary committee comprises of 9 members. 5 from BOE and 4 are appointed by the Chancellor out side BOE and then the Governor of the BOE.
The BOE monetary policy uses the interest rates and other monetary tools to influence consumer spending and aggregate demand.
Inflation rate targets are at 2%.
The bank raised interest rates for the first time in more than a decade from 0.25% to 0.5% on November 2, 2017.
Today, the bank of England sets interest rate at 0.1%.
The bank of England also sets the repo rates or the base rate.
The interest rates at which commercial banks borrow from the BOE.
This determines all the borrowing and savings in the economy.
If the inflation target goes below,
Then the BOE cuts interest rates to boost spending and economic growth.
Otherwise the BOE will increase the rate in case the inflation goes beyond target.
BOE tries to keep its inflation rate close to 2% that is between 1% to 3%.
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