GBP/USD remains below 1.3550 as US Dollar recovers ground, signals a technical correction
- GBP/USD may regain its ground as the US Dollar may return under downward pressure amid US economic uncertainty.
- The soft US economic data raised the odds of the Fed delivering two rate cuts in 2025.
- Trump granted UK exporters a temporary relief from the steep 50% tariffs on steel and aluminium.
GBP/USD retraces its recent gains from the previous session, trading around 1.3550 during the Asian hours on Thursday. The pair depreciates as the US Dollar (USD) gains ground amid a technical correction. The downside of the pair could be limited as the Greenback may receive downward pressure from dampened risk sentiment amid rising tariff uncertainty and its potential to hurt growth in the US economy.
Institute for Supply Management's (ISM) Services Purchasing Managers Index (PMI) fell to 49.9 in May, from April’s 51.6. This reading surprisingly fell short of the expected 52.0. Meanwhile, US ADP private sector employment added 37,000 jobs in May, against a 60,000 increase (revised from 62,000) recorded in April, far below the market expectation of 115,000.
US President Donald Trump posted on Truth Social on Wednesday, calling on Federal Reserve (Fed) Chairman Jerome Powell to lower the policy rate. "ADP NUMBER OUT!!! “Too Late” Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES," Trump said.
Meanwhile, Minneapolis Fed President Neel Kashkari noted that the labor market is showing some signs of slowing down. However, persistent uncertainty prevails over the economy, and the Fed must stay in wait-and-see mode to assess how the economy responds to the uncertainty.
On Wednesday, S&P Global UK Purchasing Managers’ Index (PMI) data reported Composite PMI, which rose to 50.3 in May, from April’s 48.5 reading. This reading came higher than the preliminary estimate of 49.4. Meanwhile, the Services PMI edged higher to 50.9, indicating a weak but marginal growth.
Moreover, the United Kingdom’s (UK) exporters will face the previous 25% tariff rate, as President Trump signed an executive order on Tuesday to grant temporary relief from the steep 50% US tariffs on steel and aluminium.
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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