Pound Sterling corrects against US Dollar after US court reinstates Trump tariffs
- The Pound Sterling falls slightly to near 1.3475 against the US Dollar as the Greenback rebounds slightly.
- A US federal appeals court temporarily puts on hold a lower court’s ruling against Trump’s tariffs.
- Investors await the US PCE inflation data for April.
The Pound Sterling (GBP) drops to near 1.3475 against the US Dollar (USD) in Friday’s European trading session. The GBP/USD pair faces selling pressure after a United States (US) federal appeals court temporarily halted a federal trade court’s decision to block most of US President Donald Trump’s tariffs. The move hurt market sentiment due to renewed fears over how the impact of a trade war between the US and its main trade partners could hit growth.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 99.50.
On Wednesday, a US trade court ordered the permanent injunction of reciprocal, fentanyl, and border negligence-related tariffs in 10 calendar days for abusing the 1977 International Emergency Economic Powers Act (IEEPA). The court accused Trump of invoking “national emergency” to execute tariff policies, which should have been imposed with the approval of the Congress.
The appeal court, however, halted the ruling due to the government’s appeal and ordered the plaintiffs [US small businesses] in the cases to respond by June 5 and the administration by June 9, according to a report from the Firstpost.
Apart from the judicial woes related to tariffs, another reason behind the moderate recovery in the US Dollar is a clear signal from the Federal Reserve (Fed) that it will focus solely on maintaining the central bank’s dual mandate, shrugging off recent political pressure from Trump.
Fed Chair Jerome Powell said after his first face-to-face meeting with Trump since the return of the latter to the White House that the path of policy will depend entirely on “incoming economic information and what that means for the outlook," Reuters reported. Powell also said that he didn’t express his intentions to Trump regarding the monetary policy outlook. Trump said that he believes the Fed is making a mistake by not lowering interest rates.
For fresh cues regarding the US monetary policy outlook, investors await the release of the US Personal Consumption Expenditure Price Index (PCE) data for April at 12:30 GMT. According to the CME FedWatch tool, the Fed isn’t expected to cut interest rates until September.
Daily digest market movers: Pound Sterling trades steadily against its peers
- The Pound Sterling is broadly sideways against its major peers during European trading hours on Friday. The British currency is expected to close May on a positive note against the US Dollar for the fourth consecutive month.
- Market expectations for a moderate policy-expansion cycle by the Bank of England (BoE) and the closure of trade deals with Washington, Delhi, and Brussels have helped strengthening the UK currency.
- According to a report from Reuters, the futures market indicates that traders expect borrowing rates to fall by around 38 basis points (bps) by the end of this year, implying one 25 bps interest-rate cut and a roughly 50% odds of a second.
- The major triggers behind traders paring BoE dovish bets are robust economic growth in the first quarter and, hotter-than-projected inflation.
- The International Monetary Fund (IMF) has slightly raised its UK GDP growth forecast for the current year to 1.2% from its prior estimate of 1.1%. The upward revision came on the back of upbeat Q1 Gross Domestic Product (GDP) data, which showed that the economy expanded at a robust pace of 0.7% compared to 0.1% seen in the last quarter of 2024.
- On Thursday, BoE Governor Andrew Bailey guided a “gradual and careful approach” in cutting interest rates, citing that the economy is “hard to read”. Bailey cautioned about “strengthening inflation in food and other product categories”. On the employment front, Bailey said that the UK labour market data is pretty much “in line with our expectations” and the “slowing wage increase trend is still intact”.
Technical Analysis: Pound Sterling holds key support level of 1.3445
The Pound Sterling falls to near 1.3470 against the US Dollar on Friday after a strong upside move on the previous day. The GBP/USD pair holds the key horizontal support plotted from the September 26 high of 1.3434 and rises to near 1.3500. The outlook of the pair remains firm as the 20-day Exponential Moving Average (EMA) slopes higher around 1.3395.
The 14-day Relative Strength Index (RSI) struggles to hold above 60.00. The bullish momentum would fade if the RSI slides into the 40.00-60.00 range.
On the upside, the January 13, 2022, high of 1.3750 will be a key hurdle for the pair. Looking down, the 20-day EMA will act as a major support area.
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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