GBP/USD falls to near 1.2850 following renewed US-China trade tension
- The GBP/USD pair weakened after the RICS Housing Price Balance data came in below expectations.
- Analysts at Deutsche Bank expect the BoE to potentially react strongly at its May meeting with a significant 50 basis point rate cut.
- President Trump announced an immediate tariff hike on Chinese imports to 125% shortly after China raised duties.
The GBP/USD pair snapped its two-day winning streak, retreating to around 1.2850 during Asian trading hours on Thursday. The British Pound (GBP) came under pressure following the release of weaker-than-expected data from the RICS Housing Price Balance, which showed just a 2% increase in March. This marked a significant slowdown from the 20% and 11% gains recorded in January and February, respectively, and fell far short of the anticipated 8% rise—highlighting a stagnation in price growth over recent months.
Further weighing on the British Pound was renewed trade tension between the US and China. US President Donald Trump announced an immediate hike in tariffs on Chinese imports to 125%, following China’s retaliatory increase in duties on US goods to 84%. This escalating trade war poses a negative backdrop for the United Kingdom (UK), which appears ill-equipped to compete in a price war with China. The tit-for-tat tariff hikes overshadowed earlier efforts to ease trade tensions, where the US had temporarily reduced tariffs to 10% for 90 days to support broader negotiations.
Market sentiment has shifted dovish toward the Bank of England (BoE), with traders increasingly expecting policy easing in response to global economic risks. Deutsche Bank analysts anticipate that the BoE could respond decisively at its May meeting with an aggressive 50 basis point (bps) rate cut.
Meanwhile, the Minutes from the latest Federal Open Market Committee (FOMC) Meeting suggested that US policymakers are nearly unanimous in acknowledging the dual threat of persistent inflation and slowing economic growth. The Minutes warned of “difficult tradeoffs” ahead for the Federal Reserve as it navigates these competing challenges.
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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