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US and China agree to a 90-day tariff rollback, with US reducing tariffs to 30% and China to 10%, easing global recession concerns.
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The US Dollar strengthens on deal optimism, with the DXY rising over 1% to its highest level since April 10.
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UK traders prepare for a busy week with key jobs, GDP, and manufacturing data, while Bank of England officials maintain a cautious outlook.
The Pound Sterling (GBP) fell sharply by over 0.71% or 90 pips on Monday, driven by developments over the weekend that supported the US Dollar (USD). News of a US-China trade truce caused GBP/USD to drop from around 1.3298 to 1.3207 at the time of writing.
GBP/USD Drops Over 0.71% as US-China Trade Deal Boosts Risk Sentiment and DXY Surges Past 101.50
- The US and China agreed to a 90-day pause on tariffs, with the US reducing its duties from 115% to 30% on Chinese imports, while China cut its tariffs on US goods to 10%. This deal, effective from May 14, alleviated concerns about a potential global recession.
- The news was welcomed by investors, with Wall Street opening in positive territory amid optimism that the US-China agreement might prevent a global economic downturn. Market participants are now eyeing upcoming US Consumer Price Index (CPI) data, along with inflation figures for producers and retail sales.
- At the same time, the US Dollar Index (DXY), which tracks the USD against six major currencies, rose by more than 1%, reaching 101.54, its highest level since April 10.
- In the UK, traders are awaiting important economic data, including employment figures on Tuesday, followed by GDP and manufacturing data on Thursday. Bank of England (BoE) officials, including Megan Green and Deputy Governor Clare Lombardelli, have pointed out that inflation is moving in the right direction, but Lombardelli has expressed caution, awaiting evidence of a slowdown.
GBP/USD Technical Outlook
The GBP/USD rally stalled on the back of positive news from the US, pushing the pair toward the 50-day Simple Moving Average (SMA) at 1.3080. However, sellers lacked the momentum to break below key support levels at 1.3200, 1.3150, and 1.3100.
A daily close below the May 9 swing low of 1.3211 could signal a bearish week for GBP/USD. However, data releases may help keep the pair within the current range if there are no significant changes.
On the upside, if GBP/USD breaks above 1.3250, the next resistance level will be the 20-day SMA at 1.3308. A breach of this level could expose the May 6 high at 1.3402.
