GBP/USD rises to near 1.3050 as US Dollar remains tepid ahead of PPI data
- GBP/USD rises as the US Dollar weakens amid persistent concerns over global and domestic economic outlooks.
- The US Consumer Price Index rose by 2.4% YoY in March, down from 2.8% in February.
- The US imposed a sharp increase in tariffs on Chinese imports, lifting the total rate to 145%.
GBP/USD is on track for its fourth consecutive daily gain, trading near 1.3030 during Friday’s Asian session. The pair continues to strengthen as the US Dollar loses ground amid lingering concerns over both the global and US economies.
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, has slipped to around 100.20 at the time of writing. The DXY's decline follows a surprise drop in US consumer prices for March, shifting investor focus to upcoming key data releases — the March Producer Price Index (PPI) and preliminary Michigan Consumer Sentiment, both due later today.
March’s US Consumer Price Index (CPI) showed headline inflation easing to 2.4% year-over-year, down from 2.8% in February and below expectations of 2.6%. Core CPI, which excludes volatile food and energy prices, rose 2.8%, down from 3.1% and missing the 3.0% forecast. On a monthly basis, headline CPI fell 0.1%, while core CPI edged up 0.1%.
US President Donald Trump announced a 90-day pause on new tariff hikes for most US trade partners. While tariffs on China were still raised, the broader easing of trade tensions helped calm global economic fears, improving market sentiment and supporting the risk-sensitive British Pound.
With risk appetite improving, traders have scaled back their expectations for aggressive rate cuts by the Bank of England BoE). Markets now anticipate three quarter-point cuts by year-end, in line with earlier BoE guidance for a gradual, quarterly easing cycle. A May rate cut remains highly likely, with additional moves expected in August and November.
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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