- GBP/USD gathers strength to near 1.2940 in Monday’s early European session, up 0.16% on the day.
- Next round of Trump’s tariffs is due on April 2, when the White House will announce reciprocal levies on many countries.
- BoE’s Bailey said policymakers still believed rates were on a gradually declining path.
The GBP/USD pair attracts some buyers to around 1.2940 during the early European session on Monday, bolstered by the softer Greenback. The uncertainty about US President Donald Trump's next round of tariffs and concerns over the US economic slowdown weigh on the US Dollar (USD) against the Pound Sterling (GBP). The preliminary reading of the US S&P Global Manufacturing Purchasing Managers Index (PMI) for March will take center stage later on Monday.
The Greenback remains under pressure as analysts believe Trump’s aggressive and erratic trade policies could trigger a recession. Trump has declared April 2 to be "Liberation Day" for the US, when he will implement so-called reciprocal tariffs that seek to equalize US tariffs with those charged by trading partners, as well as tariffs on sectors such as automobiles, pharmaceuticals, and semiconductors, which he has repeatedly stated would be enacted on that day.
The Bank of England (BoE) left interest rates unchanged on Thursday, keeping the benchmark rate at 4.5%. The decision had been widely anticipated by markets. BoE Governor Andrew Bailey said there is a lot of uncertainty at the moment, but he said rate-setters still believed rates were “on a gradually declining path.” Looking further ahead, we continue to expect 100 bps of BoE cuts for a terminal rate of 3.5% by early 2026,” noted Nomura Bank analysts George Buckley and Andrzej Szczepaniak.
However, the gloomy UK economic picture, along with increased global policy uncertainty and weak confidence, might undermine the GBP. The UK economy remains in the “wait-and-see mode” as it expects the upcoming budget from Chancellor Rachel Reeves and contends with the growing risks from US trade policies. Investors will closely monitor the UK Consumer Price Index (CPI) inflation data for February for fresh impetus, which will be released later on Wednesday.
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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