GBP/USD edges lower below 1.3500 as uncertainty deepens ahead of August 1 tariff deadline
- GBP/USD loses ground as the US Dollar holds ground amid rising risk aversion.
- US Commerce Secretary Lutnick affirmed that August 1 is a firm deadline, though talks will continue beyond that date.
- The BoE may reduce or temporarily halt its sales of long-dated bonds due to subdued demand from traditional buyers.
GBP/USD inches lower after registering more than 0.5% gains in the previous session, trading around 1.3480 during the Asian hours on Tuesday. The pair depreciates as the US Dollar (USD) remains steady as traders adopt caution due to prevailing uncertainty ahead of US President Donald Trump's August 1 tariff deadline.
US Commerce Secretary Howard Lutnick stated unequivocally in a televised interview, “That’s a hard deadline, so on August 1, the new tariff rates will come in. However, Lutnick also highlighted that trade discussions will not stop after the deadline, but they’re going to start paying the tariffs on August 1.”
Additionally, market sentiment deepens due to increasing worries about the Federal Reserve's (Fed) independence. US Treasury Secretary Scott Bessent said the Fed’s independence on monetary policy is under threat by its "mandate creep" into non-policy areas. Bessent urged the central bank to undertake a comprehensive review of those activities.
US Treasury Secretary Scott Bessent also called for a reassessment of the Fed as an institution. President Trump’s renewed criticism of Fed Chair Jerome Powell for not lowering interest rates has intensified speculation about a possible dismissal.
In the United Kingdom (UK), Thursday’s S&P Purchasing Managers Index (PMI) data is expected to reveal the mildest contraction in manufacturing in six months, alongside the strongest services sector growth in nearly a year.
The Bank of England (BoE) may slow or pause its sales of long-dated bonds amid weak demand from traditional buyers such as pension funds. While traders have slightly dialed back expectations for BoE policy easing, they still anticipate two rate cuts in 2025.
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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