- The Pound Sterling moves higher against its major peers despite deepening risks of stagflation in the UK economy.
- UK gilt yields tumble on firm BoE dovish bets.
- The risk-premium in the US Dollar has diminished as investors digest Trump’s tariff fears.
The Pound Sterling (GBP) recovers its entire intraday losses and climbs above 1.2500 against the US Dollar (USD) in Monday’s North American session. The GBP/USD pair bounces back as the US Dollar retreats after investors digest fears of United States (US) President Donald Trump imposing 25% tariffs on Colombia overnight.
Over the weekend, President Trump threatened to impose tariffs on its South American trading partner for not allowing military flights carrying illegal immigrants in their territory. Later, Trump put proposed tariffs on hold after Colombia accepted his terms.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls back to near 107.50 from an intraday high of 107.80. The Greenback lost its risk premium as market participants expected President Trump would use tariffs only to negotiate deals.
“This seems to feed into the growing sense that Trump is underdelivering on protectionism compared to pre-inauguration remarks, and that ultimately some of those tariff threats may not materialize as long as some concessions are made on trade,” said ING.
Going forward, this week’s primary trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday. The Fed is almost certain to keep interest rates unchanged in the range of 4.25%-4.50%. Investors will pay close attention to Fed Chair Jerome Powell’s press conference after the interest rate decision, who is expected to face the question of whether the Fed will positively react to Trump’s call for immediate rate cuts.
Daily digest market movers: Pound Sterling rises despite deepening UK stagflation risks
- The Pound Sterling strengthens against its major peers at the start of the week. The British currency rises even though investors are worried about the growing risks of stagflation in the United Kingdom (UK) economy. Friday’s S&P Global UK Purchasing Managers Index (PMI) report for January showed that employment levels dropped for the fourth straight month and cost pressures accelerated in the private sector, a scenario that leads to higher inflation as producers pass on the impact of higher input costs to customers.
- A slowdown in labor demand appears to be the outcome of Chancellor of the Exchequer Rachel Reeves’ announcement of increasing employers’ contribution to National Insurance (NI).
- The first indicators of business conditions in 2025 add to the gloom about the UK economy, with companies cutting employment amid falling sales and concerns about business prospects. Inflation pressures have, meanwhile, reignited, pointing to a stagflationary environment, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said.
- Deteriorating job market conditions and rising price pressures are expected to add more troubles for the Bank of England (BoE), which is scheduled to announce its first monetary policy decision of 2025 on February 6. Traders are confident that the BoE will reduce interest rates by 25 basis points (bps) to 4.5%.
- Meanwhile, firm BoE dovish bets have also weighed on yields on UK 30-year gilts, down over 1% to near 5.15% on Monday.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.19% | -0.18% | -1.02% | 0.12% | 0.44% | 0.29% | -0.69% | |
| EUR | 0.19% | 0.09% | -0.68% | 0.45% | 0.64% | 0.60% | -0.40% | |
| GBP | 0.18% | -0.09% | -1.10% | 0.37% | 0.55% | 0.53% | -0.48% | |
| JPY | 1.02% | 0.68% | 1.10% | 1.18% | 1.65% | 1.56% | 0.47% | |
| CAD | -0.12% | -0.45% | -0.37% | -1.18% | 0.13% | 0.18% | -0.84% | |
| AUD | -0.44% | -0.64% | -0.55% | -1.65% | -0.13% | 0.00% | -0.98% | |
| NZD | -0.29% | -0.60% | -0.53% | -1.56% | -0.18% | -0.01% | -1.22% | |
| CHF | 0.69% | 0.40% | 0.48% | -0.47% | 0.84% | 0.98% | 1.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Technical Analysis: Pound Sterling gains ground above 20-day EMA
The Pound Sterling revisits the psychological resistance of 1.2500 against the US Dollar. The near-term outlook of the GBP/USD pair remains firm as it holds the 20-day Exponential Moving Average (EMA), which trades around 1.2380.
The 14-day Relative Strength Index (RSI) moves higher above 50.00 from the 20.00-40.00 range, suggesting that the bearish momentum has ended, at least for now.
Looking down, the January 13 low of 1.2100 and the October 2023 low of 1.2050 will act as key support zones for the pair. On the upside, the December 30 high of 1.2607 will act as key resistance.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD advances to daily highs past 1.0900
Further correction in the Greenback now sends EUR/USD to the area of daily peaks in the 1.0910-1.0915 band following mixed US yields and steady concerns over a probable US economic slowdown. In the meantime, investors are expected to remain cautious ahead of the FOMC event.
GBP/USD pushes higher, retargets 1.3000
The selling pressure in the Greenback now picks up extra pace and favours the continuation of the upside impulse in GBP/USD, which shifts its focus to the key 1.3000 threshold.
Gold consolidates around $3,000 ahead of Fed
Gold prices has started the week on a positive tone and maintains their trade around the key $3,000 mark per troy ounce on the back of the modest pullback in the Greenback and mixed US yields across the curve,
Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC, ETH, XRP gain as MicroStrategy buys $10.7 million BTC
Bitcoin (BTC) daily price chart shows signs of recovery in the largest cryptocurrency. Strategy, one of the largest corporate holders of Bitcoin, acquired another 130 BTC last week, according to an announcement on Monday.
Five Fundamentals for the week: Fed leads central bank parade as uncertainty remains extreme Premium
Central bank bonanza – perhaps its is not as exciting as comments from the White House, but central banks still have sway. They have a chance to share insights about the impact of tariffs, especially when they come from the world's most powerful central bank, the Fed.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.