Pound Sterling corrects against US Dollar after US court reinstates Trump tariffs

• The Pound Sterling falls slightly to near 1.3475 against the US Dollar as the Greenback rebounds slightly.

• A US federal appeals court temporarily puts on hold a lower court’s ruling against Trump’s tariffs.

• Investors await the US PCE inflation data for April.

The Pound Sterling (GBP) drops to near 1.3475 against the US Dollar (USD) in Friday’s European trading session. The GBP/USD pair faces selling pressure after a United States (US) federal appeals court temporarily halted a federal trade court’s decision to block most of US President Donald Trump’s tariffs.  The move hurt market sentiment due to renewed fears over how the impact of a trade war between the US and its main trade partners could hit growth. 

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 99.50.

On Wednesday, a US trade court ordered the permanent injunction of reciprocal, fentanyl, and border negligence-related tariffs in 10 calendar days for abusing the 1977 International Emergency Economic Powers Act (IEEPA). The court accused Trump of invoking “national emergency” to execute tariff policies, which should have been imposed with the approval of the Congress.

The appeal court, however, halted the ruling due to the government’s appeal and ordered the plaintiffs [US small businesses] in the cases to respond by June 5 and the administration by June 9, according to a report from the Firstpost.

Apart from the judicial woes related to tariffs, another reason behind the moderate recovery in the US Dollar is a clear signal from the Federal Reserve (Fed) that it will focus solely on maintaining the central bank’s dual mandate, shrugging off recent political pressure from Trump.

Fed Chair Jerome Powell said after his first face-to-face meeting with Trump since the return of the latter to the White House that the path of policy will depend entirely on “incoming economic information and what that means for the outlook," Reuters reported. Powell also said that he didn’t express his intentions to Trump regarding the monetary policy outlook. Trump said that he believes the Fed is making a mistake by not lowering interest rates.

For fresh cues regarding the US monetary policy outlook, investors await the release of the US Personal Consumption Expenditure Price Index (PCE) data for April at 12:30 GMT. According to the CME FedWatch tool, the Fed isn’t expected to cut interest rates until  September.

Daily digest market movers: Pound Sterling trades steadily against its peers

The Pound Sterling is broadly sideways against its major peers during European trading hours on Friday. The British currency is expected to close May on a positive note against the US Dollar for the fourth consecutive month. 

Market expectations for a moderate policy-expansion cycle by the Bank of England (BoE) and the closure of trade deals with Washington, Delhi, and Brussels have helped strengthening the UK currency.

According to a report from Reuters, the futures market indicates that traders expect borrowing rates to fall by around 38 basis points (bps) by the end of this year, implying one 25 bps interest-rate cut and a roughly 50% odds of a second.

The major triggers behind traders paring BoE dovish bets are robust economic growth in the first quarter and, hotter-than-projected inflation.

The International Monetary Fund (IMF) has slightly raised its UK GDP growth forecast for the current year to 1.2% from its prior estimate of 1.1%. The upward revision came on the back of upbeat Q1 Gross Domestic Product (GDP) data, which showed that the economy expanded at a robust pace of 0.7% compared to 0.1% seen in the last quarter of 2024.

On Thursday, BoE Governor Andrew Bailey guided a “gradual and careful approach” in cutting interest rates, citing that the economy is “hard to read”. Bailey cautioned about “strengthening inflation in food and other product categories”. On the employment front, Bailey said that the UK labour market data is pretty much “in line with our expectations” and the “slowing wage increase trend is still intact”.

Technical Analysis: Pound Sterling holds key support level of 1.3445

The Pound Sterling falls to near 1.3470 against the US Dollar on Friday after a strong upside move on the previous day. The GBP/USD pair holds the key horizontal support plotted from the September 26 high of 1.3434 and rises to near 1.3500. The outlook of the pair remains firm as the 20-day Exponential Moving Average (EMA) slopes higher around 1.3395.

The 14-day Relative Strength Index (RSI) struggles to hold above 60.00. The bullish momentum would fade if the RSI slides into the 40.00-60.00 range.

On the upside, the January 13, 2022, high of 1.3750 will be a key hurdle for the pair. Looking down, the 20-day EMA will act as a major support area.