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Pound Sterling rises to near 1.3300 against the US Dollar ahead of the US-China trade talks this weekend.
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Investors react positively to the US-UK trade deal unveiled on Thursday.
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The Bank of England cuts interest rates by 25 bps to 4.25%, while the Federal Reserve maintains rates at 4.25%-4.50% this week.
The Pound Sterling (GBP) recovers from earlier losses and climbs toward 1.3300 against the US Dollar (USD) during North American trading hours on Friday. The GBP/USD pair benefits from a slight pullback in the US Dollar after a strong rally on Thursday.
The US Dollar Index (DXY), which measures the Greenback’s strength against six major currencies, retraces to around 100.10 after reaching a nearly month-high of 100.85 the previous day. The spike in the USD came in response to the announcement of the US-UK trade deal.
The US Dollar’s recent rally reflects investor optimism over the first trade deal under President Trump since the 'Liberation Day,' boosting confidence that tariffs are being used strategically in trade negotiations, easing fears of economic disruption from higher import duties.
However, the tangible impact of the US-UK trade deal is minimal, given the US already enjoys a trade surplus with the UK. Investors are hoping for a more significant boost to confidence if the US-China trade war de-escalates following talks scheduled for this weekend.
US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer are set to meet with Chinese officials in Switzerland, with the aim of reducing trade tensions. US Commerce Secretary Howard Lutnick expressed optimism about improving trade relations between the two largest global economies. President Trump, ahead of the talks, suggested that tariffs on China could be reduced to 80%, stating, "80% Tariff on China seems right! It's up to Scott Bessent."
Daily Market Movers: Pound Sterling Gains Against Peers
- The Pound Sterling strengthens against most major currencies on Friday, driven by the US-UK trade deal announcement and the Bank of England’s (BoE) interest rate cut decision. The BoE reduced rates by 25 basis points (bps) to 4.25%, marking the fourth rate cut in the current easing cycle.
- Despite the 7-2 vote split, the BoE’s decision to keep a “gradual and careful” approach to policy easing, along with an upward revision to the GDP growth forecast, boosted investor confidence in the Pound. The UK’s economy is now projected to grow at 1%, up from 0.75%.
- However, BoE Governor Andrew Bailey cautioned about risks from the ongoing global trade war, noting that the economic environment remains unpredictable.
- Meanwhile, the US Dollar remains supported following the Federal Reserve’s decision to leave rates unchanged at 4.25%-4.50% on Wednesday. Fed Chair Jerome Powell warned of potential stagflation risks due to the ongoing tariff announcements by President Trump, suggesting a scenario of higher inflation and lower employment if tariffs continue to rise.
Technical Analysis: Potential Bearish Outlook for the Pound Sterling
The Pound Sterling is currently trading near a three-week low of 1.3210 against the US Dollar. However, the outlook is uncertain due to a potential Head and Shoulders (H&S) formation on the 4-hour chart. If the pair breaks down from this formation, it could signal a bearish reversal. The pair is trading below the 50-period Exponential Moving Average (EMA) at 1.3305, indicating a bearish near-term trend.
The 14-period Relative Strength Index (RSI) is vulnerable around 40.00, and a further decline below this level could trigger bearish momentum. Key resistance lies at the three-year high of 1.3445, while the psychological support level at 1.3000 remains a critical downside target.
