GBP/USD rises to test new highs, absorbs Trump tariffs in stride
- GBP/USD briefly tested new six-month highs on Wednesday after tariff announcements.
- The Trump administration’s tariffs came in at levels that investors found better than feared.
- Steep import taxes are still being imposed on US consumers, and economic data will become increasingly important.
GBP/USD stepped into fresh bids at six-month highs on Wednesday after the Trump administration unveiled tariffs that overall came in better than many investors had feared based on President Donald Trump’s cavalcade of tariff threats since taking up residence in the White House 72 days ago. The exact details of the tariff proposals remain complex, but US consumers can expect to pay a flat 10% tariff on all imports into the US, alongside an additional 25% tariff on all automobiles and car parts, and varied “reciprocal” tariffs charged at different levels on a per-country basis. Donald Trump also took the opportunity to remind the world that he still intends to issue even further tariff packages on things like copper, microchips, and other basic imported consumer goods that underpin the entire US economy.
With tariffs set to jack up consumer prices in the coming months, and with a lack of a clear workaround for consumer markets to obtain foreign goods without paying steep import taxes, inflation pressures are likely to rise in the near-term and stay high for much longer than anybody wants. As noted by Federal Reserve (Fed) policymakers, uncertainty around the Trump administration’s trade policies will likely keep interest rates higher for even longer than previously expected.
The release schedule on the UK side of the economic data docket remains light this week, but a fresh print of US Nonfarm Payrolls (NFP) labor figures are due later this week. This NFP release could be a major datapoint for markets as the US economy heads into a post-tariff economic environment, with March’s labor data set to act as a “bellwether” for the impacts of the Trump team’s tariff plans.
GBP/USD price forecast
GBP/USD is once again battling the 1.3000 handle as bids push into fresh six-month peaks. Cable has been riding a bullish trendline breakout since mid-January’s swing low into 1.2100, and could be poised for an extended breakout if price action makes a clean push through 1.3000.
GBP/USD daily chart
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.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
