Pound Sterling consolidates against US Dollar ahead of Trump’s tariffs announcement
- The Pound Sterling trades in a tight range around 1.2900 against the US Dollar as US President Trump is scheduled to unveil the reciprocal tariff plan.
- Trump’s tariff agenda is expected to address unfair practices by his trading partners.
- Easing UK wage growth momentum could pave the way for more BoE interest rate cuts.
The Pound Sterling (GBP) trades sideways around 1.2900 against the US Dollar (USD) in Wednesday’s European session. The GBP/USD pair consolidates as investors have been sidelined, waiting for the release of a detailed reciprocal tariff plan by United States (US) President Donald Trump later in the day.
US President Trump has been touting April 2 as “Liberation Day” for weeks as he believes that the imposition of reciprocal tariffs will make “America great again”. Trump’s reciprocal tariffs are expected to upend the global trade system soon, as White House spokeswoman Karoline Leavitt signaled on Tuesday that fresh levies will become effective immediately after the announcement.
Market sentiment is expected to become excessively risk-averse if the degree of import duties comes in higher than expected. A note from the Washington Post on Tuesday showed that the White House aides have drafted a proposal to impose 20% tariffs on most imports to the US. Also, US Treasury Secretary Scott Bessent said on Tuesday that the President will sweep the highest possible levies on his major trading allies. Bessent suggested that tariffs on targeted countries could be diminished if they ease trade and non-trade barriers for imports from the US.
Donald Trump is expected to distribute the tariff collection to households through tax dividends or refunds. Such a scenario will be inflationary for the US economy, forcing the Federal Reserve (Fed) to maintain a restrictive monetary policy stance in the near term.
In Wednesday’s session, investors will also focus on the ADP Employment Change data for March, which will be released at 12:15 GMT. The agency is expected to show that private employers added 105K fresh workers, higher than the 77K addition recorded in February.
Daily digest market movers: Pound Sterling trades with caution on Trump tariff jitters
- The Pound Sterling trades cautiously against its major peers on Wednesday. The British currency struggles as investors turn risk-averse ahead of Trump’s reciprocal tariff announcement. Market participants expect that Trump's new suite of levies will weigh on global economic growth, assuming that the imposition of higher duties by the US on its trading partners will make their products less competitive in the global market.
- The United Kingdom (UK) economy will also bear the burden of uncertainty in the global market. The UK Office for Business Responsibility (OBR) warned on Monday that Trump’s policies could wipe out the government fiscal buffer and cut the economy’s size by as much as 1%.
- Additionally, a delay in negotiations between the US and the UK over finalizing an economic deal beyond the “Liberation Day” has also stemmed concerns over the outlook of trade relations between them. There is a high chance that the terms and conditions of the potential economic deal could change after the reciprocal tariff announcement.
- Meanwhile, cooling wage growth pressures are expected to uplift Bank of England (BoE) dovish bets. The Incomes Data Research (IDR) reported on Wednesday that the median pay rise grew by 3.5% in the three months to February, slower than the prior release of 4%. This was the lowest level seen in three years. It seems that employers refrain from awarding fat hikes to compensate for the increase in contributions to social security schemes. In the Autumn Statement, Chancellor of the Exchequer Rachel Reeves raised employers’ contribution to National Insurance (NI) from 13.8% to 15%.
Technical Analysis: Pound Sterling ranges against US Dollar around 1.2900
The Pound Sterling trades inside Tuesday’s trading range against the US Dollar on Wednesday. The GBP/USD pair continues to wobble around the 61.8% Fibonacci retracement, plotted from late-September high to mid-January low, near 1.2930. The 20-day Exponential Moving Average (EMA) provides support to the pair around 1.2890.
The 14-day Relative Strength Index (RSI) cools down to near 60.00 after turning overbought above 70.00. Should a fresh bullish momentum come into action if the RSI resumes the upside journey after holding above the 60.00 level
Looking down, the 50% Fibonacci retracement at 1.2770 and the 38.2% Fibonacci retracement at 1.2615 will act as key support zones for the pair. On the upside, the October 15 high of 1.3100 will act as a key resistance zone.
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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