Pound Sterling recovers against US Dollar while fears of US-China trade war ebb

• The Pound Sterling rebounds to near 1.3300 against the US Dollar as the USD Index struggles to extend its two-day recovery.

• US Treasury Secretary Bessent hopes for a reduction in additional tariffs by both the US and China on each other.

• Investors await the US Durable Goods Orders and the UK Retail Sales data for March.

The Pound Sterling (GBP) bounces back to near 1.3300 against the US Dollar (USD) in Thursday’s European session. The GBP/USD pair rebounds after a two-day correction as the USD struggles to extend the recovery, with the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, facing pressure near the psychological level of 100.00.

The USD Index recovered strongly earlier this week after United States (US) President Donald Trump backed away from threats of sacking Federal Reserve (Fed) Chair Jerome Powell and softened his stance on trade relations with China.

US President Trump clarified on Tuesday that he has no intention to fire Jerome Powell. Investors had dumped the US Dollar and US assets in the last few trading days due to a series of verbal attacks from Trump on the Fed’s independence for not backing monetary policy expansion. This led investors to reassess the “safe-haven” status of the US Dollar.

Meanwhile, diminishing fears of an intense trade war between the US and China had also boosted the USD’s demand. On Tuesday, Donald Trump signaled that “discussions with Beijing are going well” and expressed confidence that “they will reach a deal”. 

Hopes of a de-escalation in the US-China relationship got an extra boost as US Treasury Secretary Scott Bessent indicated on Wednesday that both nations will reduce additional tariffs imposed lately. Neither side believes that these are “sustainable levels,” Bessent said.

On the economic front, investors await the US Durable Goods Orders data for March, which will be published at 12:30 GMT. The cost of orders received by manufacturers for durable goods is expected to have grown at a robust pace of 2% compared to a 1% increase seen in February.

Daily digest market movers: Pound Sterling will be influenced by UK Retail Sales data

• The Pound Sterling demonstrates a mixed performance against its peers on Thursday. The British currency is outperforming its North American peers, but is down against the Euro (EUR), with investors turning cautious over the likely United Kingdom (UK) economic outlook in the face of tariffs announced by US President Trump earlier this month.

• Bank of England (BoE) Governor Andrew Bailey has expressed concerns over economic growth and stressed the need to consider trade war risk. "We do have to take very seriously the risk to growth,” Bailey said at the sidelines of the International Monetary Fund’s (IMF) spring meetings on Wednesday and added "We’re currently working through that because we’ve got an interest rate decision coming in two weeks’ time,” Reuters report. In the May policy meeting, traders are increasingly confident that the BoE will cut interest rates by 25 basis points (bps) to 4.25%.

• For the remaining year, the IMF has anticipated three interest rate cuts by the BoE and has revised UK Gross Domestic Product (GDP) growth for 2025 to 1.1% from 1.6% projected earlier amid worries of global fallout due to Trump’s international policies, BBC News reported.

• On the economic front, investors will focus on the United Kingdom (UK) Retail Sales data for March, which will be released on Friday. The Retail Sales data, a key measure of consumer spending, is expected to have declined by 0.4% month-on-month after rising by 1% in February. On year, the consumer spending measure is estimated to have risen at a moderate pace of 1.8% compared to the prior release of 2.2%.

Technical Analysis: Pound Sterling rebounds to near 1.3300

The Pound Sterling recovers to near 1.3300 against the US Dollar during European trading hours on Wednesday. The outlook of the pair remains firm as all short-to-long Exponential Moving Averages (EMAs) are sloping higher.

The 14-day Relative Strength Index (RSI) cools down to near 65.00 after turning overbought. This indicates a mild correction in the pair after a strong rally, but the upside trend is intact.

On the upside, the psychological level of 1.3500 will be a key hurdle for the pair. Looking down, the April 3 high around 1.3200 will act as a major support area.