GBP/USD drifts lower below 1.3450 ahead of US GDP release
- GBP/USD softens to near 1.3435 in Thursday’s early European session.
- The federal trade court struck down Trump's reciprocal tariffs, supporting the US Dollar.
- Odds of more BoE rate cuts fall as food inflation rises.
The GBP/USD pair trades in negative territory around 1.3435 during the early European session on Thursday. The Greenback strengthens against the Pound Sterling (GBP) after the US trade court blocks US President Donald Trump's sweeping tariffs. The preliminary reading of the US Gross Domestic Product (GDP) report for the first quarter (Q1) will be the highlight later on Thursday.
The summary of the May meeting of the Federal Open Market Committee (FOMC) suggested that uncertainty about the economic outlook has increased further. Federal Reserve (Fed) officials said meeting its dual goals of full employment and low inflation has been complicated due to policy uncertainty. Fed policymakers emphasized the need to keep interest rates on hold for some time, as policy shifts in the US cloud the economic outlook.
Early Thursday, a US federal court blocked Trump's "Liberation Day" tariffs from going into effect. A federal trade court ruled that an emergency law invoked by the White House does not give Trump unilateral authority to impose tariffs on nearly every country. This headline provides some support for the Greenback and acts as a headwind for the major pair.
The chance of more Bank of England (BoE) interest rate cuts falls as food inflation in the United Kingdom (UK) has risen for the fourth consecutive month, indicating signs of sticky inflation. Barclays analysts no longer expect the BoE to cut rates in June and now forecast the base rate will drop to 3.5 % by February 2026, rather than by the end of this year as previously predicted. A less dovish stance from the UK central bank might help limit the GBP’s losses in the near term.
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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