GBP/USD edges higher above 1.3350 as Trump’s attacks on Powell threaten Fed’s independence
- GBP/USD remains strong near 1.3370 in Tuesday’s early Asian session.
- Trump slams the Fed’s Powell for not cutting interest rates.
- Cooler UK inflation data and global uncertainty have paved the way for BoE rate reductions.
The GBP/USD pair trades in positive territory around 1.3370 during the early Asian session on Tuesday. Fears of a slowdown in the United States (US) and concerns over the Federal Reserve (Fed) independence drag the US Dollar (USD) lower and create a tailwind for a major pair.
US President Donald Trump slammed the Fed’s Powell for continuing to support a “wait and see” mode on the monetary policy until greater clarity over how the new tariff policy will shape the economic outlook. Trump warned in a Truth Social post that the US economy would slow unless Powell lowered interest rates immediately.
Meanwhile, the US Dollar Index (DXY), an index of the value of the USD measured against a basket of six world currencies, currently trades near 98.30, the lowest since March 2022. The heightened uncertainty around Trump’s tariffs and rising trade tensions between the US and China undermine the USD across the board.
On the other hand, softer UK March Consumer Price Index (CPI) inflation data and global uncertainty have paved the way for an interest rate cut by the Bank of England (BoE) in May’s policy meeting. Financial markets are now betting on an interest rate cut from the BoE meeting at its May meeting, estimating an 86% possibility, according to the LSEG data. This, in turn, could weigh on the Pound Sterling (GBP) against the Greenback.
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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