- GBP/USD edged higher after US President Donald Trump signaled a willingness to engage in trade negotiations.
- US Customs and Border Protection confirmed plans to start collecting country-specific tariffs from 86 trade partners.
- The British Pound found support from stronger as the 10-year gilt yield rose to around 4.61%.
The GBP/USD pair advances for a second straight session, trading near 1.2820 during Asian hours on Wednesday. The pair’s uptick is supported by easing trade tensions after US President Donald Trump signaled openness to negotiations with global partners, fueling hopes of a potential de-escalation in trade conflicts.
US Customs and Border Protection confirmed on Tuesday that it is prepared to begin collecting country-specific tariffs from 86 trade partners. While President Trump maintained his broader tariff plans despite requests for exemptions, he indicated a willingness to engage in discussions.
Chicago Fed President Austan Goolsbee emphasized a data-driven approach to monetary policy decisions. According to the CME FedWatch Tool, markets are increasingly pricing in a 25-basis-point rate cut as early as May, though a July cut remains the base case. Traders anticipate over 100 basis points in rate reductions by year-end.
The Pound Sterling (GBP) also drew support from rising UK gilt yields, with the 10-year yield climbing to around 4.61% at the time of writing. Investors grew cautiously optimistic that some US tariffs may be negotiated, following comments from Treasury Secretary Scott Bessent that around 70 countries—including Japan—have approached Washington for talks.
The UK economy may weather the impact better than others, given its relatively modest 10% tariff exposure. UK firms could benefit if US buyers seek alternative suppliers to avoid elevated costs. The UK government estimates the direct GDP impact will be under 0.1%.
Meanwhile, expectations for Bank of England (BoE) rate cuts are rising. Following the tariff developments, markets are fully pricing in a May rate cut—up from 50% prior—and foresee three cuts by the end of 2025.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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