Pound Sterling gains against a weakened US Dollar amid US-EU disputes
- The Pound Sterling gains against the US Dollar as US-EU disputes weaken the Greenback.
- US President Trump threatens 10% additional tariffs on several EU members, including the UK.
- Investors await key UK data, notably employment and inflation figures.
The Pound Sterling (GBP) trades 0.15% higher to near 1.3400 against the US Dollar (USD) during the European trading session on Monday. The GBP/USD pair rises as the US Dollar (USD) underperforms across the board amid disputes between the United States (US) and the European Union (EU) over Washington’s desire to purchase Greenland.
During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.2% lower to near 99.15.
Over the weekend, US President Donald Trump announced 10% tariffs on several EU members through a post on Truth. Social, adding that "the National Security of the US, and the world at large, is at stake". Trump stated that additional tariffs will come into effect from February 1 and will remain until Washington makes a “complete and total purchase” of Greenland.
In response, EU members have criticized new tariff threats from Washington, calling them “undesirable”, and have vowed equal countermeasures. France's President Emmanuel Macron said, "Tariff threats are unacceptable in this context, and we will not be swayed by any intimidation," BBC reported.
Analysts at ANZ have stated that the US Dollar is bearing the brunt of US-EU disputes as markets are pricing in “increased political risk premia” on the Greenback.
Daily Digest Market Movers: Pound Sterling to remain volatile amid UK data-packed week
- The Pound Sterling trades higher against the US Dollar, but lower against its major currency peers, as US President Trump has also threatened 10% tariffs on the United Kingdom (UK) amid US-EU disputes over Greenland.
- In response, UK Prime Minister Keir Starmer stated that applying tariffs on allies for pursuing the collective security of NATO allies is “wrong", Reuters reported. A spokesperson from the UK government has stated that the safety in the high north (Greenland) is a priority for all NATO allies.
- Going forward, the Pound Sterling is expected to continue to remain volatile amid a UK data-packed week, starting with the employment figures for the three months ending in November due on Tuesday.
- Investors will pay close attention to the UK labor market data to get fresh cues on the Bank of England’s (BoE) monetary policy outlook. The ILO Unemployment Rate is expected to show a drop to 5% from 5.1% in three months ending November the highest level seen since early 2021. Average Earnings Including Bonuses is seen lower at 4.6% from the prior reading of 4.7%.
- This week, other major releases are the UK Consumer Price Index (CPI) and Retail Sales figures for December, and the preliminary S&P Global Purchasing Managers’ Index (PMI) data for January.
- In the US, traders remain confident that the Federal Reserve (Fed) will hold interest rates steady at the upcoming January monetary policy meeting, according to the CME FedWatch tool. However, Fed Vice Chair for Supervision Michelle Bowman said on Friday that the Fed should be prepared to cut rates further amid fragile labor market conditions.
Technical Analysis: GBP/USD strives to return above 50-day EMA
GBP/USD trades slightly higher at 1.3397 as of writing. Price holds just above the rising 50-Exponential Moving Average (EMA) at 1.3386, keeping the short-term tone supported.
The 14-day Relative Strength Index (RSI) at 48 (neutral) reflects tempered momentum after the recent pullback.
Measured from the 1.3793 high to the 1.3009 low, the 50% Fibonacci retracement at 1.3401 caps immediate upside. A decisive recovery move above the same could push the price towards the 61.8% Fibonacci retracement at 1.3494. On the contrary, a close below 38.2% Fibo retracement at 1.3309 would extend the decline toward the December low at 1.3180.
(The technical analysis of this story was written with the help of an AI tool.)
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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