Pound Sterling gains against US Dollar amid uncertainty over US-China trade talks
- The Pound Sterling rises to near 1.3350 against the US Dollar as the latter trades with caution due to uncertainty over the status of US-China trade talks.
- Beijing keeps denying Trump’s claim of having trade discussions with China’s Xi.
- The BoE is almost certain to cut interest rates next week.
The Pound Sterling (GBP) jumps higher to near 1.3350 against the US Dollar (USD) in Monday’s European session. The GBP/USD pair gains as the US Dollar (USD) trades cautiously as investors try to seek clarity about whether the United States (US) and China are actively discussing the terms and conditions of a trade deal.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades inside Friday’s range around 99.50.
On Monday, China stated clearly that there have been no trade discussions between President Xi Jinping and US President Donald Trump. China’s denial of recent talks between the two leaders comes after Trump has claimed that Xi has called him, refraining from commenting on the timing and topics discussed.
Additionally, investors appear to be on the sidelines as they wait for a slew of US economic data releases this week., Traders will focus on a string of employment-related, economic, Gross Domestic Product (GDP), and inflation data, which will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.
According to the CME FedWatch tool, Fed officials are expected to leave interest rates unchanged in the range of 4.25%-4.50% in the policy meeting on May 6-7.
Fed officials have signaled that monetary policy adjustments would be appropriate only if they get greater clarity on the economic outlook under the leadership of Trump.
Daily digest market movers: Pound Sterling gains against its peers
- The Pound Sterling outperforms its peers at the start of the week despite firm expectations that the Bank of England (BoE) will cut interest rates by 25 basis points (bps) to 4.25% in the policy meeting on May 8. BoE dovish bets have escalated amid fears that the new tariff policy by the US will weaken economic growth in the United Kingdom (UK), and as inflation pressures seem to be subsiding.
- Last week, BoE Governor Andrew Bailey stressed the need to consider the trade war risk by the central bank. "We do have to take very seriously the risk to growth,” Bailey said on the sidelines of the International Monetary Fund’s (IMF) Spring Meetings in Washington. However, he ruled out the possibility of an economic recession.
- Additionally, BoE policymaker Megan Greene has also expressed concerns over “weak productivity” and “risks to the labor market” due to an increase in employers’ contributions to social security schemes, in a discussion with the Atlantic Council think tank on Friday. When asked about the impact of Trump’s tariff policy on UK inflation, Greene says she expects the potential trade war to be “net disinflationary” for the economy.
- Market participants seem to be pricing in that the trade war between the US and China will be limited, but the stand-off could hit European economies, given the low-cost competitive advantage of Beijing. China is expected to sell its products into European economies if the US shows reluctance to buy them. Such a scenario would be unfavorable for the UK business activity.
Technical analysis: Pound Sterling climbs to near 1.3350
The Pound Sterling rises to near 1.3350 against the US Dollar in Monday’s European session. The pair gains as the overall outlook remains bullish, with all short-to-long Exponential Moving Averages (EMAs) sloping higher.
The 14-day Relative Strength Index (RSI) rebounds to near 65.00 after cooling down to 60.00, indicating a resurgence in the upside trend.
On the upside, the psychological level of 1.3500 will be a key hurdle for the pair. Looking down, the April 3 high around 1.3200 will act as a major support area.
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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