GBP/USD attracts some buyers above 1.2950 on weaker US Dollar
- GBP/USD drifts higher to around 1.2965 in Monday’s Asian session, adding 0.21% on the day.
- The fears of economic slowdown in the US drag the US Dollar lower.
- UK Retail Sales climbed unexpectedly in February.
The GBP/USD pair gathers strength to near 1.2965 during the Asian trading hours on Monday. The concerns that US President Donald Trump's tariffs will ignite inflation and dampen economic growth weigh on the US Dollar (USD) and act as a tailwind for the major pair.
Last week, Trump announced a 25% tariff on imported cars and light trucks set to take effect on April 3. This measure comes on top of a flat 25% tariff on steel and aluminum, and Trump's impending reciprocal tariff announcement on Wednesday. Many analysts are worried that tariffs will have a negative impact on the US economy, even while limiting the Federal Reserve's (Fed) chance for reducing interest rates while also increasing inflation in the near term. This, in turn, might drag the USD lower and lift the GBP/USD pair in the near term.
"Recession risks have become elevated – to a 40% probability – on concerns that aggressive U.S. policies hit business and household sentiment," warned Bruce Kasman, chief economist at JPMorgan.
UK data showed Retail Sales were surprisingly strong in February, supporting the Pound Sterling (GBP). The UK Retail Sales rose 1.0% MoM in February versus 1.4% prior (revised from 1.7%), the Office for National Statistics showed on Friday. This figure came in stronger than the estimation of a 0.3% decline. “The better news on retail sales in Q1 provides a glimmer of hope that that might be changing,” said Ruth Gregory, economist at the consultancy Capital Economics.
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.