Pound Sterling consolidates against US Dollar as investors seek fresh US tariff headlines

The Pound Sterling trades in a tight range around 1.3440 against the US Dollar, with investors awaiting fresh developments on US tariffs.
Traders pare Fed dovish bets, following the US CPI data for June.
The BoE is unlikely to cut interest rates in the September meeting.

The Pound Sterling (GBP) trades calmly around 1.3440 against the US Dollar (USD) during the European trading session on Monday. The GBP/USD consolidates as the US Dollar (USD) remains broadly stable, with investors awaiting developments on tariffs by the United States (US) on its trading partners ahead of the August 1 deadline.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks down marginally to near 98.35. However, it remains close to the four-week high of around 99.00 set last week.

So far, the US has announced trade deals with the United Kingdom (UK), Vietnam, and Indonesia, and a limited pact with China. Washington has also expressed confidence that it is close to signing a trade agreement with India. US President Donald Trump has announced tariffs on 22 nations, notably Japan, Vietnam, Canada, Mexico, and the European Union (EU).

Meanwhile, trade tensions between the US and EU have escalated as the former has demanded a higher baseline tariff on imports from the trading bloc. According to a report from the Financial Times (FT), Washington is eyeing at least a minimum tariff of 15% to 20% in a deal with the Eurozone.

The report has also shown that President Trump has been reluctant to reduce tariffs on imports of automobiles from the EU, which stand at 25%. Trade tensions between the US and the EU could be unfavorable for global trade flows, given the size of business between both economies.

Daily digest market movers: Pound Sterling ticks up against its peers

The Pound Sterling starts the week on a slightly positive note. The British currency ticks up as market experts have pared bets supporting a higher number of interest rate cuts by the Bank of England (BoE) for the remainder of the year.
According to a report from Reuters, a number of Wall Street brokerage houses have reassessed their BoE rate cut expectations, following the release of the hotter-than-projected United Kingdom (UK) Consumer Price Index (CPI) data for June and lesser-than-expected weakness in the labor market data for the three months ending in May.
Analysts at Bank of America (BofA) Global Research, Citigroup, Morgan Stanley and Goldman Sachs pared expectations for a September BoE interest rate cut on Thursday. Citigroup expects the central bank to cut interest rates in August, November and December.
Last week, the UK CPI report showed that inflationary pressures grew at a faster-than-expected pace. The UK headline and core CPI rose by 3.6% and 3.7% on year, respectively. Meanwhile, the labor market data showed that the decline in the number of employees, which are already on payroll, was less than what it appeared in prior readings. According to the employment report, the number of workers laid off was revised lower to 25K from prior estimates of 109K.
This week, investors will pay close attention to the preliminary UK S&P Global Purchasing Managers' Index (PMI) data for July and the Retail Sales data for June, which will be released on Thursday and Friday, respectively.
In the US, traders have pared Federal Reserve (Fed) dovish bets for the September meeting. According to the CME FedWatch tool, the probability that the Fed will reduce interest rates at the September meeting has declined to 58.5% from almost 70% seen a month ago.
Traders trimmed expectations for the Fed to reduce interest rates in the September meeting after the release of the US CPI data for June last week, which showed that prices of products that are largely imported have increased after the imposition of sectoral tariffs by President Donald Trump.

Technical Analysis: Pound Sterling wobbles around 1.3440

The Pound Sterling oscillates within Friday’s range around 1.3440 against the US Dollar on Monday. The near-term trend of the GBP/USD pair is bearish as it trades below 20-day and 50-day Exponential Moving Averages (EMAs), which trade around 1.3510 and 1.3470, respectively.

The 14-day Relative Strength Index (RSI) strives to hold above the 40.00 level. A fresh bearish momentum would emerge if the RSI falls below that level.

Looking down, the May 12 low of 1.3140 will act as a key support zone. On the upside, the July 11 high around 1.3585 will act as a key barrier.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.