GBP/USD holds below 1.2400 on firmer US Dollar
- GBP/USD softens to around 1.2390 in Monday’s Asian session, losing 0.14% on the day.
- Trump said he will announce reciprocal tariffs on many countries this week.
- BoE’s Bailey reiterated that a “gradual and careful approach to monetary policy remains appropriate.”
The GBP/USD pair weakens to near 1.239 during the Asian trading hours on Monday. The US Dollar climbs after US President Donald Trump promised reciprocal tariffs. The release of the US Consumer Price Index (CPI) for January will take center stage later on Wednesday.
Trump said on Friday that he would announce reciprocal tariffs on Tuesday or Wednesday on countries that tax US imports, with them going into effect 'almost immediately'.
Tariffs on UK goods exported to the US may still be on the cards, though Trump has said a deal “can be worked out." Traders will closely watch the developments surrounding more tariff policies from Trump. Any signs of escalating trade war tensions could boost the safe-haven USD.
The expectation of further rate cuts by the Bank of England (BoE) could undermine the Pound Sterling (GBP). BoE Governor Andrew Bailey said that additional rate reductions should be expected but that “we will have to judge meeting by meeting how far and how fast.". Bailey added during the press conference that economic activity is weakening and the jobs market is slowing down. Markets are currently pricing in another 50 basis points (bps) of cuts in 2025.
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.
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.
