GBP/USD flat lines above 1.2900 mark as traders await Trump’s tariffs announcement
- GBP/USD lacks any firm intraday direction and remains confined in a range on Wednesday.
- Fed rate cut bets keep the USD bulls on the defensive, which acts as a tailwind for the major.
- Expectations for less aggressive BoE rate cuts further lend support ahead of Trump’s tariffs.
The GBP/USD pair struggles to capitalize on the overnight bounce from the vicinity of the 1.2870 support zone, or a multi-week low touched last Thursday, and oscillates in a narrow band during the Asian session on Wednesday. Spot prices currently trade around the 1.2915-1.2920 region, nearly unchanged for the day, as traders keenly await US President Donald Trump's reciprocal tariffs announcement before placing fresh directional bets.
In the meantime, investors opt to wait on the sidelines amid the risk of a widening global trade war, especially after Trump dashed hopes that the levies would be limited to a smaller group of countries with the biggest trade imbalances. The UK expects to be hit by new US tariffs, indicating that a deal to exempt British goods will not be reached in time. This, in turn, is seen acting as a headwind for the British Pound (GBP) and the GBP/USD pair.
The downside, however, seems cushioned amid subdued US Dollar (USD) price action, led by expectations that a tariff-driven slowdown in the US economic activity would force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. In fact, the markets are pricing in a greater chance of a rate cut in June and the bets were lifted by US ISM PMI on Tuesday, which indicated that the manufacturing sector contracted for the first time in three months.
Apart from this, a stable performance around the equity markets is seen undermining the safe-haven Greenback, The British Pound (GBP), on the other hand, could draw support from expectations that the Bank of England (BoE) will lower borrowing costs more slowly than other central banks, including the Fed. This might further contribute to limiting the downside for the GBP/USD pair and warrants caution for aggressive bearish traders.
Moving ahead, there isn’t any relevant market-moving economic data due for release from the UK. The US economic docket, however, features the ADP report on private-sector employment and Factory Orders data. This, along with the broader risk sentiment, could influence the USD and provide some impetus to the GBP/USD pair later during the North American session. The focus, however, remains glued to Trump’s tariffs announcement.
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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