- GBP/USD rebounds after touching a one-month low during the Asians session on Monday.
- The divergent Fed-BoE policy expectations support the pair amid a weaker USD.
- The global carnage offers some support to the safe-haven buck and might cap the major.
The GBP/USD pair attracts some dip-buyers near the 1.2830 region, or over a one-month low touched during the Asian session on Monday and for now, seems to have stalled its retracement slide from a six-month peak touched last week. Spot prices currently trade around the 1.2900 round figure, though the uptick lacks bullish conviction amid the gloomier global economic outlook.
US President Donald Trump's sweeping reciprocal tariffs announced last Wednesday fueled worries about the widening trade war, which, in turn, could dent the global growth. This continues to weigh heavily on investors' sentiment and is evident from a sea of red across the global equity markets. This is seen benefiting the US Dollar's (USD) relative safe-haven status against its British counterpart and acting as a headwind for the GBP/USD pair.
The USD bulls, however, seem reluctant to place aggressive bets amid the rising bets that a tariff-driven slowdown in the US business activity might force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. In fact, the markets are now pricing in the possibility that the Fed will deliver four quarter-basis-points rate cuts in 2025. This, along with the anti-risk flow, leads to a steep decline in the US Treasury bond yields and undermines the USD.
The British Pound (GBP), on the other hand, seems to draw support from expectations that the Bank of England (BoE) will lower borrowing costs more slowly than other central banks, including the Fed. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the upside. Even from a technical perspective, a bounce from the 200-day Simple Moving Average (SMA) support favors the GBP bulls and validates the positive outlook.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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