GBP/USD hovers near six-month highs, 1.3300, eyes on US-UK trade discussions
- GBP/USD rises as the US Dollar comes under pressure amid growing worries over the economic fallout from US tariffs.
- Federal Reserve Chair Jerome Powell warned that a sluggish economy paired with persistent inflation could elevate the risk of stagflation.
- UK Chancellor of the Exchequer Rachel Reeves is set to hold talks with US officials next week to push forward trade deal negotiations.
GBP/USD continues its upward momentum from April 8, trading near 1.3280 during Friday's Asian session. The pair is buoyed by a weakening US Dollar (USD), as concerns grow over the economic impact of tariffs on the United States. While market participants monitor developments in US trade talks, trading activity is expected to remain light due to the Good Friday holiday.
The USD found some support after hawkish remarks from Federal Reserve Chair Jerome Powell, who cautioned that a sluggish economy coupled with persistent inflation could challenge the Fed’s dual mandate and increase stagflation risks. According to the CME FedWatch Tool, traders are pricing in around 86 basis points of rate cuts by the end of 2025, with the first expected in July.
On the data front, the US Department of Labor reported that Initial Jobless Claims fell to 215,000 for the week ending April 12, beating expectations and down from a revised 224,000 the previous week. However, Continuing Claims rose by 41,000 to 1.885 million for the week ending April 5.
UK Chancellor of the Exchequer Rachel Reeves plans to meet with US officials next week to advance trade deal discussions. The Telegraph reports that the White House believes a deal could be finalized “within three weeks.”
UK economic data has shown signs of resilience, with strong wage growth and improving GDP figures. However, easing inflation is fueling expectations of rate cuts from the Bank of England (BoE). March CPI slowed to 2.6% year-over-year, below forecasts, while monthly inflation edged down to 0.3%. Core services inflation, a key BoE gauge, dipped to 4.7%.
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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