- GBP/USD strengthens as US President-elect Donald Trump’s economic team is considering a gradual increase in import tariffs, which has boosted investor confidence.
- The incoming Trump administration is considering a gradual approach to implementing tariffs and avoiding a sharp rise in inflation.
- The US Dollar Index retreats from 110.18, the highest level since November 2022.
GBP/USD breaks its five-day losing streak, bouncing from its 15-month low of 1.2099, recorded on Monday. The GBP/USD pair holds above 1.2200 during Asian trading hours on Tuesday, as the British Pound (GBP) gains ground amid increased investor confidence.
The rise in investor confidence is attributed to reports of US President-elect Donald Trump’s economic team considering a gradual increase in import tariffs, which has boosted investor confidence. According to Bloomberg, the incoming Trump administration is evaluating a gradual approach to implementing tariffs, with the goal of avoiding a sharp rise in inflation while managing trade policy adjustments.
However, the Pound’s upside could be limited due to concerns about stagflation in the United Kingdom (UK) amid persistent inflation and stagnant economic growth. Additionally, a recent rise in UK government bond yields has raised concerns about the country’s fiscal health. Investors have been dumping UK bonds, driven by fears of rising debt, slow growth and inflation risks. These concerns contribute to the GBP’s relative weakness.
The US Dollar Index (DXY), which measures the performance of the US Dollar against six major currencies, corrects lower after reaching its highest level at 110.18 since November 2022. At the time of writing, the DXY maintains its position about 109.60. The USD gained strength following strong US labor market data for December, which is expected to support the US Federal Reserve’s (Fed) decision to keep interest rates at current levels in January.
Additionally, strengthened hawkish sentiment around the Fed’s policy outlook led to a rise in US Treasury yields, with the 2-year yield hitting 4.42% and the 10-year yield rising at 4.80% as of Monday. Higher yields are helping the dollar stay near recent highs. The US Producer Price Index (PPI) for December will be in focus later on Tuesday.
British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit 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, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important data that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
