Pound Sterling weakens on Trump’s war comments

GBP/USD softens to around 1.3215 in Thursday’s early European session.
Trump said war is nearly over, vowed ‘extremely hard’ hits in the coming weeks.
Traders are concerned that a potential BoE rate hike could raise downside risks to the economy, weighing on the Pound Sterling.

Lallalit Srijandorn FXStreet

The GBP/USD pair attracts some sellers to near 1.3215 during the early European trading hours on Thursday. The Pound Sterling (GBP) weakens against the US Dollar (USD) as US President Donald Trump’s comments dampen de-escalation hopes. Traders brace for the US weekly Initial Jobless Claims report, which is due later on Thursday.

Trump said during a primetime televised speech from the White House on Thursday that Iran had been decimated and that the hard part of the war was done. However, he added that the US would hit Iran “extremely hard” for the next two to three weeks.

The US President also called for countries that receive oil through the Strait of Hormuz to show “courage” and seize the key waterway, while saying Washington will not allow its Middle East allies to be harmed. Persistent tensions in the Middle East continue to support a safe-haven currency such as the Greenback and act as a headwind for the major pair.

The Bank of England (BoE) Governor Andrew Bailey cautioned that financial markets are "getting ahead of themselves" by pricing in multiple interest rate hikes for later this year. Traders are fully pricing a full percentage point of BoE monetary tightening in 2026 for the first time, as the Iran conflict continues to fuel inflationary pressures, according to Bloomberg.

Traders are concerned that hawkish signals about a potential interest rate hike could stifle UK economic growth, which could exert some selling pressure on the Cable against the USD.

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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