- The Pound Sterling recovers to 1.3470 against the US Dollar as investors reassess the impact of the US court’s decision against tariffs.
- The US court ruled out Trump’s tariff policy, citing it as a violation of constitutional limits.
- The IMF has slightly raised its forecast for UK GDP growth for the year to 1.2%
The Pound Sterling (GBP) recovers early losses against the US Dollar (USD), after hitting a bottom of 1.3415, and trades flat around 1.3470 during European trading hours on Thursday. The GBP/USD pair rebounds as the US Dollar surrenders a chunk of its initial gains, as the United States (US) Court of International Trade’s verdict against President Donald Trump’s tariffs increases economic uncertainty further.
The event also seems critical for business owners, who started designing their procurement strategies, considering Trump’s levies as the new normal for the global economy.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is up only 0.25% around 100.10, which went around 100.50 earlier in the day.
Earlier in the day, the US Dollar (USD), bond yields, and US equities gained sharply after the Manhattan-based court blocked Donald Trump from sweeping most tariffs.
The court condemned Trump’s usage of the Carter-era International Emergency Economic Powers Act (IEEPA) to justify his international agenda, quoting it as exploitation of the president’s authority. The court has ruled out import duties announced by him on the so-called “Liberation Day”, while sector-specific tariffs such as automobiles, metals, and semiconductors are intact.
Meanwhile, a 10-day deadline has been issued by the court to the administration for a permanent injunction of Liberation Day tariffs, to which the White House appealed soon after the decision.
Daily digest market movers: Pound Sterling gains on IMF revision of UK GDP growth to 1.2%
- The Pound Sterling trades higher against its major peers on Thursday as the International Monetary Fund (IMF) has slightly raised the United Kingdom (UK) Gross Domestic Product (GDP) growth forecast for the current year to 1.2% from 1.1% in the wake of upbeat economic performance seen in the first quarter.
- The Office for National Statistics (ONS) reported in the middle of the month that the economy expanded at a robust pace of 0.7%, compared to estimates of 0.6% and a nominal growth of 0.1% seen in the last quarter of 2024.
- Another reason behind the strength in the British currency is fading market expectations that the Bank of England (BoE) will reduce interest rates again in the June policy meeting. Traders have pared BoE dovish bets on hotter-than-expected UK Consumer Price Index (CPI) and a robust growth in the UK Retail Sales data for April.
- This week, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for April, which will be released on Friday. The US core PCE inflation data, which is the Federal Reserve’s (Fed) preferred inflation gauge, is expected to have grown at a moderate pace of 2.5% on year, compared to the prior release of 2.6%.
Technical Analysis: Pound Sterling attracts bids near 1.3430
The Pound Sterling bounces back against the US Dollar on Thursday after attracting bids near the horizontal support plotted from the September 26 high of 1.3434. The outlook of the pair remains firm as the 20-day Exponential Moving Average (EMA) slopes higher around 1.3385.
The 14-day Relative Strength Index (RSI) struggles to hold above 60.00. The bullish momentum would come to an end if the RSI slides into the 40.00-60.00 range.
On the upside, the 13 January 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.
