GBP/USD gains traction above 1.3250 on fresh trade uncertainty

GBP/USD gains ground to around 1.3270 in Thursday’s early Asian session.
Fresh trade uncertainty triggered by Trump continues to weigh on the US Dollar.
Traders raise their bets on the BoE rate cut in May.

Lallalit Srijandorn FXStreet

The GBP/USD pair gathers strength to near 1.3270, snapping the two-day losing streak during the early Asian session on Thursday. The US Dollar (USD) weakens against the Cable due to the uncertainty surrounding Trump’s trade policies.

The US President Donald Trump's administration stated that it has spoken to 90 countries regarding tariffs already. The US will set tariffs for China over the next two to three weeks, and it depends on China how soon tariffs can come down.

Furthermore, Trump on Wednesday said that a 25% tariff imposed on cars imported from Canada to the US could go up as Trump is pushing his interest to bolster US auto production and reduce dependence on foreign-made vehicles. Trump’s tariff uncertainty dampens the economic outlook and sentiment, which weigh on the Greenback.

On the other hand, the rising bets of the Bank of England rate reductions in the May meeting could undermine the Pound Sterling (GBP) in the near term. Financial markets have priced in nearly 82% odds of a BoE interest rate cut next month, as the effects of Donald Trump's evolving trade war continue to play out in the global economy, according to the LSEG data.

The US weekly Initial Jobless Claims are due later on Thursday, along with the Chicago Fed National Activity Index, Durable Goods Orders, and Existing Home Sales. On Friday, the UK Retail Sales data for March will be in the spotlight, which is expected to decline by 0.4% month-on-month after rising by 1.0% in February.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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