What Moves the GBP.

Changes in Monetary Policy

Many investors look at the pound for higher-yielding assets and for carry trades.

Changes in the MPC’s interest rate alter sentiment towards the pound as it affects the yield of British securities.

In addition, changes in the bank repo rate also reveal the BOE’s outlook on the economy.

If the BOE officials feel that the economy is hurting, they will either expand quantitative easing measures or cut interest rates, which will signal to the public that the economy is unstable.

If the BOE feels that the economy’s rise may lead to inflationary pressures down the road, they may cut back on quantitative easing or hike interest rates.

Developments in the eurozone and US

Like other currency pairs, GBP/USD is also heavily affected by developments in the eurozone and U.S. U.S. economic data directly affect investors’ and traders’ sentiment in the market.

Good or bad data from the U.S. can either send market participants running to the GBP on increased risk appetite or looking for safety in the USD on account of risk aversion.

The Spill Over Effect

The eurozone accounts for a majority of the U.K.’s trade relations.

Because of this, you should also keep your binoculars ready to see any developments over in the mainland (Remember, the U.K. is an island!).

Any bad news or poor economic performance could potentially lead to bearish sentiment towards the GBP.

Driven by Risk Sentiment

Albeit small, the GBP benefits from the fact that it boats a higher interest rate amongst other major currencies.

When traders are in search of greater yields, they will look to the U.K. because of the potential of getting a higher return on their investments.

When traders want to unwind their high-yielding investments and look for USD-dearest, they will start selling off the GBP.

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