Pound Sterling gathers strength above 1.3500 amid tariff confusion

GBP/USD strengthens to near 1.3520 in Monday’s Asian session.
Confusion surrounds US trade policy, weighing on the US Dollar.
UK Retail Sales in January beat forecasts.

Lallalit Srijandorn FXStreet

The GBP/USD pair gains traction to around 1.3520 during the early Asian session on Monday. The US Dollar (USD) faces some selling pressure against the Cable as tariff uncertainty lingers. Traders will take more cues from the US Producer Price Index (PPI) report for January, which will be published later on Friday.

The US Supreme Court struck down Trump’s tariffs as illegal and exceeding his authority on Friday. Trump has responded by lashing out at the court and imposing a blanket 15% levy on imports. Reuters stated that Trump's replacement tariffs run for 150 days, and it is not clear if the US owes importers refunds on duties already paid, with the Supreme Court making no ruling on that issue.

"It weakens the dollar in the sense that it potentially benefits non-U.S. growth," said Sim Moh Siong, currency strategist at OCBC Bank in Singapore.

The stronger-than-expected UK economic data provide some support to the Pound Sterling (GBP) against the Greenback. The UK Retail Sales jumped 1.8% MoM in January, versus a rise of 0.4% prior, according to the Office for National Statistics (ONS) on Friday. This figure came in above the market consensus of an increase of 0.2%. On an annual basis, Retail Sales climbed 4.5% in January compared to a rise of 1.9% prior (revised from 2.5%), better than the estimation of a rise of 2.8%.

The attention will shift to the US January PPI report on Friday. The headline and core PPI are expected to show a rise of 0.3% in January. Any signs of hotter inflation in the US could lift the USD and create a headwind for the major pair in the near term.

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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