Pound Sterling remains stronger above 1.3500 following Trump’s State of the Union

GBP/USD rises as a softer Dollar follows Donald Trump’s State of the Union address.
Trump threatened higher tariffs on countries “playing games” after the Supreme Court blocked sweeping levies.
BoE’s Bailey says March rate cut is an “open question” as services inflation hits 4.4%, above the 4.1% projection.

Akhtar Faruqui FXStreet

GBP/USD remains in the positive territory for the fourth successive session, trading around 1.3510 during the Asian hours on Wednesday. The pair appreciates as the US Dollar (USD) remains subdued following US President Donald Trump’s first State of the Union (SOTU) address of his second administration before a joint session of Congress.

Trump said he has delivered a “turnaround for the ages,” highlighting lower inflation and touting his administration’s economic record. He also pointed to efforts to curb illegal immigration and the flow of fentanyl across the border. Trump warned he could impose higher tariffs on countries that “play games” with recent trade agreements after the Supreme Court blocked several of his broad global levies.

The US Dollar (USD) could regain traction as expectations grow that the Federal Reserve (Fed) will keep interest rates unchanged for an extended period. Boston Fed President Susan Collins said Tuesday that it would be appropriate to hold rates in the current range for some time. Meanwhile, Richmond Fed President Thomas Barkin noted that monetary policy is “well-positioned” to manage risks surrounding the economic outlook.

In the United Kingdom (UK), the Confederation of British Industry (CBI) Retail Sales Balance fell to -43 in February from -17 in January, missing expectations of -16. Retail volumes have been weakening since mid-2023, with February marking a sharp contraction. Retailers described seasonal sales as “poor” and foresee continued weakness amid subdued demand.

The Bank of England (BoE) Governor Andrew Bailey told Parliament’s Treasury Committee that a March rate cut remains “a genuinely open question,” noting services inflation stood at 4.4% in January, above the BoE’s 4.1% projection. Chief Economist Huw Pill also urged caution, warning against being “beguiled” by headline inflation easing toward the 2% target.

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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