- GBP/USD moves little as traders remain cautious amid increasing uncertainty surrounding Trump’s plans for tariffs.
- Trump said that he will begin sending letters on trade tariffs to other countries starting Friday.
- BoE’s Bailey noted that interest rates should be lowered gradually, as inflationary pressures appear to be easing.
GBP/USD holds ground for the second consecutive day, trading around 1.3660 during the Asian hours on Friday. The pair remains steady as the US Dollar (USD) depreciates as traders adopt caution, while seeking clarity on US President Donald Trump’s plans for tariffs on various countries. On Thursday, Trump told reporters that he “will begin sending letters on trade tariffs starting Friday.” He added that he would send letters to 10 countries at a time, laying out tariff rates of 20% to 30%, reported by Reuters.
The GBP/USD pair maintains its position as the Pound Sterling (GBP) receives support after Prime Minister (PM) Keir Starmer’s defense of Chancellor Rachel Reeves. PM Starmer affirmed that she would remain in her role of chancellor “for a very long time to come.” This helped ease market concerns that a potential replacement might adopt a looser fiscal stance with increased borrowing.
The Bank of England (BoE) is expected to deliver an interest rate cut in August, taking the central bank’s base rate to 4%, following dovish remarks from officials. BoE Governor Andrew Bailey told CNBC on Tuesday that interest rates should come down gradually as inflationary pressures appear to be easing.
Meanwhile, BoE policymaker Alan Taylor spoke at the European Central Bank (ECB) Forum on Central Banking, in Sintra, on Wednesday, saying that I don’t think bigger cuts are necessarily needed or desirable. Everything has to be taken into consideration; we are not on a preset path on rates, Taylor added.
Pound Sterling FAQs
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).
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.
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.
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.
Read the full article here
