GBP/USD whipsaws as tariffs come and go

GBP/USD plunged after the weekend’s tariff threats.
Significant concessions in US tariff scheme sees market sentiment recover.
Broader markets brush off tariffs to recover risk appetite.

Joshua Gibson FXStreet

GBP/USD sewered after a batch of fresh tariff threats from US President Donald Trump hit the markets, but plunges across global risk markets clawed back to recover ground after looming US tariffs on Canada and Mexico gave way to 30-day concessions from the Trump administration. Odds of US tariffs on the UK specifically remain limited, and Cable managed to rebound to the 1.2450 region at the tail-end of the Monday trading session.

The Bank of England (BoE) is set to give another rate call later this week, and markets are broadly pricing in another rate cut. The BoE’s Monetary Policy Committee (MPC) is expected to vote eight-to-one on cutting interest rates another quarter-point to 4.5%, with the one holdout expected to vote for holding rates steady for another meeting.

Another US Nonfarm Payrolls (NFP) print looms ahead on Friday. Jobs figures are unlikely to move the needle too much this week. The US labor segment remains sturdy, and geopolitical headlines are taking the front seat this week.

GBP/USD price forecast

Despite a bullish recovery, GBP/USD remains caught on the wrong end of momentum. The early week’s price action cut a deep gouge in the pair, dragging bids into a two-week low below 1.2300.

Price action pared back intraday losses, but Cable still remains south of the 50-day Exponential Moving Average (EMA) at the 1.2500 handle.

GBP/USD daily chart

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

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.

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