Pound Sterling underperforms US Dollar on optimism over US-EU trade deal
- The Pound Sterling corrects to 1.3550 against the US Dollar on hopes of a swift US-EU trade deal.
- Fed’s Kashkari warns of stagflation risks under Trump's leadership.
- Traders pare BoE dovish bets on a slew of positive UK economic data.
The Pound Sterling (GBP) slides to near 1.3540 against the US Dollar (USD) in Tuesday’s North American session after correcting from the three-year high around 1.3600 posted the previous day. The GBP/USD pair drops as the US Dollar rebounds on optimism over the United States (US) and the European Union (EU) reaching a trade deal swiftly.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 99.35 after attracting bids near the monthly low of 98.70.
During North American trading hours, US President Donald Trump wrote in a post on Truth. Social, "He has been informed that the EU has called to quickly establish meeting dates. This is a positive event, and I hope that they will."
While the outlook for the US Dollar remains fragile, as investors struggle to predict how bilateral deals between the US and its trading partners will shape the economic outlook. Federal Reserve (Fed) officials have predicted that new economic policies by US President Donald Trump will lead to stagflation risks in the economy, and any monetary policy adjustment would be inappropriate until the scale of the inflation increase and the weakness in economic growth can be anticipated.
During European trading hours, Minneapolis Federal Reserve President Neel Kashkari said, "Until there is more clarity on the path for tariffs, their impact on prices and economic activity, he will support holding interest rates steady." Kashkari also warned of elevated uncertainty due to the fallout of tariffs by Washington. “Uncertainty is something that is top of the mind for the Fed and US businesses, and we’re trying to navigate where inflation and the labor market are going,” Kashkari said. He affirmed, “There’s no question that the shock of tariffs is stagflationary.”
On the economic front, US Durable Goods Orders data for April has come in significantly weak. The Census Bureau reported that cost of orders received by manufacturers for durable goods declined by 6.3% after a significant increase of 7.6% in March. Economists expected the data to have declined substantially by 7.9%.
Daily digest market movers: Pound Sterling trades higher as traders pare BoE dovish bets
- The Pound Sterling reflects some strength against most of its major peers on Tuesday, except the US Dollar, as traders become increasingly confident that the monetary expansion cycle by the Bank of England (BoE) would be moderate than what the central bank guided in its policy announcement earlier this month.
- According to a report from Reuters, the futures market shows traders see borrowing rates falling by around 38 basis points (bps) by the end of this year, indicating one 25 bps interest rate cut and a roughly 50% odds of a second.
- Major triggers behind the increase in traders’ confidence towards a moderate policy-easing stance are robust United Kingdom (UK) Q1 Gross Domestic Product (GDP) growth, hotter-than-projected Consumer Price Index (CPI), and upbeat Retail Sales data for April.
- This month, the Office for National Statistics (ONS) reported that the economy grew at a robust pace of 0.7% in the first quarter of the year, the headline CPI accelerated at a faster pace to 3.5% on year, and the Retail Sales expanded strongly by 1.2% on month.
- In the policy meeting earlier this month, the BoE reduced borrowing rates by 25 bps to 4.25% with a 7-2 vote split and guided a “gradual and careful” interest rate cut approach. BoE Chief Economist Huw Pill was one of the two policymakers who voted for leaving interest rates at their current levels. Pill expressed confidence in a speech at Barclays in London last week that the “underlying disinflation process remains intact”. His vote in favor of holding interest rates steady was to indicate that the central bank needs to be cautious on rate cuts. “Quarterly pace of 25 bps cuts seen since last summer is too rapid given the inflation outlook,” Pill said and added, “Pace of quarterly cuts too rapid given the balance of risks to price stability we face.”
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.25% | 0.13% | 1.00% | 0.21% | 0.64% | 0.84% | 0.64% | |
| EUR | -0.25% | -0.14% | 0.70% | -0.05% | 0.30% | 0.48% | 0.36% | |
| GBP | -0.13% | 0.14% | 0.90% | 0.09% | 0.42% | 0.63% | 0.46% | |
| JPY | -1.00% | -0.70% | -0.90% | -0.74% | -0.33% | -0.21% | -0.34% | |
| CAD | -0.21% | 0.05% | -0.09% | 0.74% | 0.41% | 0.54% | 0.37% | |
| AUD | -0.64% | -0.30% | -0.42% | 0.33% | -0.41% | 0.10% | -0.06% | |
| NZD | -0.84% | -0.48% | -0.63% | 0.21% | -0.54% | -0.10% | -0.20% | |
| CHF | -0.64% | -0.36% | -0.46% | 0.34% | -0.37% | 0.06% | 0.20% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Technical Analysis: Pound Sterling stays above all short-to-long-term EMAs
The Pound Sterling corrects to 1.3550 against the US Dollar on Tuesday after hitting a fresh three-year high the previous day. The near-term trend of the GBP/USD pair remains bullish as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher.
The 14-day Relative Strength Index (RSI) rises to near 70.00, indicating a strong bullish momentum.
On the upside, the January 13, 2022, high of 1.3750 will be a key hurdle for the pair. Looking down, the April 28 high of 1.3445 will act as a major support area.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
