Pound Sterling consolidates around 1.2950 against US Dollar on Trump tariff fears
- The Pound Sterling trades sideways around 1.2950 against the US Dollar as investors gauge the consequences of US President Trump’s tariff policies.
- US CPI inflation cools down more than expected in February, US PPI data eyed.
- The BoE is expected to keep interest rates steady next week.
The Pound Sterling (GBP) turns sideways around 1.2950 against the US Dollar (USD) on Thursday after posting a fresh four-month high near 1.2990 the previous day. The GBP/USD pair consolidates as the US Dollar steadies after declining for two weeks, while investors weigh the consequences of United States (US) President Donald Trump’s tariff agenda over cooling inflationary pressures and US economic growth. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gains slightly to near 103.65, marginally higher from an over four-month low of 103.20 reached on Tuesday.
On Wednesday, US President Trump threatened to announce retaliatory tariffs on the European Union (EU) after the 27-nation bloc warned to impose counter-tariffs on goods imported from the US worth 26 billion Euros (EUR). The shared continent vowed to impose counter-surcharges on the US as Trump’s decision to levy 25% tariffs on imports of steel and aluminum across the globe went into effect.
Fears of a potential EU-US trade war have offered a temporary cushion to the US Dollar. However, softer-than-expected US Consumer Price Index (CPI) data for February is expected to keep the upside in the Greenback limited. The US CPI report showed on Wednesday that the headline and core inflation decelerated at a faster-than-expected pace to 2.8% and 3.1%, respectively. This scenario is unfavorable for the US Dollar as cooling price pressures boost Federal Reserve (Fed) dovish bets.
For more cues on inflation, investors will focus on the US Producer Price Index (PPI) data for February, which will be published at 12:30 GMT. Economists expect the headline PPI to have risen by 3.3% year-over-year, slower than the 3.5% increase in January. In the same period, the core PPI – which excludes volatile food and energy prices – is expected to grow steadily by 3.6%.
Daily digest market movers: Pound Sterling trades with caution amid dismal market mood
- The Pound Sterling trades cautiously as Donald Trump's tariff measures have dampened the appeal of risk-sensitive assets. Market participants expect Trump’s ‘America First’ policies will lead to high inflation and a global economic slowdown. This has increased the demand for safe-haven assets.
- On the domestic front, investors await the United Kingdom's (UK) monthly Gross Domestic Product (GDP) and the factory data for January, which will be released on Friday. Investors will pay close attention to the UK GDP data as Bank of England (BoE) policymakers are worried about the economic outlook.
- In the February policy meeting, the BoE revised the GDP forecast for the year to 0.75%, lowered from the 1.5% projected in November. Also, BoE Monetary Policy Committee (MPC) member Catherine Mann favored a larger-than-usual interest rate cut of 50 basis points (bps) amid concerns over growth prospects.
- The UK economy is expected to have grown at a moderate pace of 0.1%, compared to the 0.4% economic expansion seen in December. Monthly factory data is estimated to have declined in the first month of 2025.
- Going forward, the next major trigger for the British currency will be the Bank of England’s (BoE) monetary policy decision, which will be announced next week. The BoE is expected to keep interest rates steady at 4.5% as most officials have guided a ‘gradual and cautious’ policy-easing approach. In the Feb meeting, the BoE reduced interest rates by 25 bps.
Technical Analysis: Pound Sterling sees more upside above 1.3000
The Pound Sterling trades firmly near the four-month high around the psychological level of 1.3000 against the US Dollar on Thursday. The long-term outlook of the GBP/USD pair has turned bullish as it holds above the 200-day Exponential Moving Average (EMA), which is around 1.2697.
The 14-day Relative Strength Index (RSI) holds above 60.00, indicating a strong bullish momentum.
Looking down, the 50% Fibonacci retracement at 1.2767 and the 38.2% Fibonacci retracement at 1.2608 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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