The Pound Sterling (GBP) ticks up to near 1.3630 against the US Dollar (USD) on Tuesday. The GBP/USD pair edges higher as the US Dollar retraces after posting a fresh weekly high, following the announcement of fresh tariff rates by United States (US) President Donald Trump on key 14 trading partners.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades cautiously around 97.35.
On Monday, US President Trump sent letters to 14 countries dictating tariff rates for nations that have failed to strike a trade deal with Washington during the 90-day tariff extension. Notably, the White House slapped 25% tariffs on imports from Japan, with whom Washington has been negotiating actively in the past few weeks.
Meanwhile, Japanese Prime Minister Shigeru Ishiba said that Tokyo would continue to negotiate with the US to seek a mutually beneficial trade deal, Reuters reported.
After sending letters to his trading partners, US President Trump warned through a post on Truth.Social that any sort of retaliation would be followed by a similar increase in import duties. Despite the threats of tariffs, Asian markets trade higher on Tuesday as Trump left the door open for additional trade negotiations until August 1, when the new tariffs would come into force.
Persistent uncertainty surrounding Trump’s tariff policy is expected to keep the US Dollar on the back foot. Market experts struggle to gauge the impact of the US tariff policy on American and global growth outlook.
The Pound Sterling moves slightly higher to near 1.3630 against the US Dollar on Tuesday. The GBP/USD pair strives to hold the 20-day Exponential Moving Average (EMA), which trades around 1.3600. A downside move by the pair below the same would turn the near-term trend to bearish.
The 14-day Relative Strength Index (RSI) hovers slightly above 50.00, suggesting that the bullish momentum has faded.
Looking down, the psychological level of 1.3500 will act as a key support zone. On the upside, the three-and-a-half-year high around 1.3800 will act as a key barrier.
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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