Pound Sterling flattens against US Dollar after Trump-Xi trade talks
- The Pound Sterling gives back early gains and turns flat around 1.3200 against the US Dollar.
- The US Dollar rebounds after China confirms it will resume rare earth exports to Washington.
- On Wednesday, the Fed reduced interest rates and downplayed hopes for further monetary expansion this year.
The Pound Sterling (GBP) flattens around 1.3200 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair turns flat as the US Dollar has recovered its early losses, following comments from United States (US) President Donald Trump and China’s commerce ministry after the meeting between Trump and Chinese leader Xi Jinping.
At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 99.20.
After trade talks with Chinese leader Xi, US President Trump has claimed that the “meeting with Xi was amazing”. He said, “On a scale of 1 to 10, the meeting with Xi was a 12”. Trump further added that tariffs on China will be 47% – down from 57% – there will be no roadblocks on rare earth exports to Washington and the purchase of soyabeans by Beijing will begin immediately.
In response, the Chinese commerce ministry has stated that Beijing will suspend export control measures announced on October 9 for a year, and will expand agricultural trade with Washington.
Signs of improving US-China trade relationship are favorable for the US Dollar.
Daily digest market movers: Pound Sterling gains temporary cushion against US Dollar
- The Pound Sterling gains a temporary ground against the US Dollar on Thursday after revisiting an almost six-month low around 1.3140 the previous day. The Cable fell sharply on Wednesday after the Federal Reserve (Fed) decision to reduce interest rates by 25 basis points (bps) to 3.75%-4.00%.
- This was the second straight interest rate cut by the Fed this year. The central bank was expected to announce a dovish interest rate decision, as recent US Consumer Price Index (CPI) data release has signaled that the impact of tariffs on inflation is not persistent. Additionally, deteriorating labor market conditions and the ongoing federal shutdown remained key reasons behind the Fed’s rate cut announcement.
- Fed Chairman Jerome Powell also stated that the cut was “risk management” as the job creation has remained “very low”.
- Technically, lower interest rates by the Fed bode poorly for the US Dollar; however, the Greenback strengthened after Chair Powell argued against further monetary easing in the December policy meeting. “Another cut in December is far from assured, as inflation remains somewhat elevated relative to the goal,” he said.
- Powell's comments signaling no support for an interest rate cut in December led investors to revise their dovish expectations. According to the CME FedWatch tool, traders see a 70% chance that the Fed will hold interest rates steady in the range of 3.75%-4.00% in December, significantly increased from 9.1% seen on Tuesday.
- In the United Kingdom (UK), the major trigger for the British currency will be expectations regarding the upcoming Bank of England’s (BoE) monetary policy scheduled next week. Analysts at Goldman Sachs wait for the BoE to cut interest rates by 25 bps to 3.75% on November 6. The investment banking firm turns dovish for November’s monetary policy due to the softening labor market.
- Contrary to Goldman Sachs, a recent Reuters poll showed that economists expect there will be no further interest rate cuts by the BoE this year, and the central bank will restart the monetary-easing campaign in the first quarter of 2026.
Technical Analysis: Pound Sterling wobbles around 1.3200
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The Pound Sterling trades in a tight range around 1.3200 against the US Dollar on Thursday. The GBP/USD pair finds a temporary support after refreshing an almost six-month low near 1.3140 on Wednesday. The outlook for the cable remains bearish as it trades below the 200-day Exponential Moving Average (EMA), which is around 1.3295.
The 14-day Relative Strength Index (RSI) falls below 40.00, indicating that a fresh bearish momentum has emerged.
Looking down, the psychological level of 1.3000 will act as a key support zone. On the upside, the October 28 high around 1.3370 will act as a key barrier.
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.
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