GBP/USD Shows Weekly Losses as US Dollar Weakens Over Trade and Growth Concerns

• UK Manufacturing PMI revised upward for May, suggesting less deterioration in the sector.
• Bank of England’s MPC to discuss monetary policy in a hearing this Tuesday, with a focus on future guidance.
• Federal Reserve Chairman Powell highlights Fed speakers and upcoming Non-Farm Payrolls while steering clear of policy discussions.

The British pound (GBP) has started the week on a positive note, recovering against the US dollar (USD) on Monday, which helps to reduce some of last week’s losses. The GBP/USD pair is making slight gains as investors are reducing their positions in the US dollar due to uncertainties surrounding the global economy.

Currently, the GBP/USD pair is trading close to 1.3540, pulling back from an intraday peak of 1.3559. While there was a noticeable rise earlier in the day, sustaining those gains has proven challenging as buying interests have softened in a cautious market environment.

The US dollar has come under new pressure after President Trump revealed intentions to double tariffs on steel and aluminum imports. China has also pushed back against recent trade allegations, contributing to the US dollar index (DXY) dropping to last week’s low, settling at 98.80.

Looking at the data, the Purchasing Manager Index (PMI) for US ISM Manufacturing has decreased to 48.5 from 48.7, marking its most pronounced contraction since November 2024 and illustrating ongoing weakness in the sector. Conversely, the S&P Global Manufacturing PMI in the UK improved from a preliminary estimate of 45.1 in May, suggesting moderate, if not robust, conditions in the industrial landscape.

On the policy front, Bank of England (BOE) member Katherine Mann emphasized the need for central banks to account for the effects of quantitative tightening (QT) on financial conditions, especially as interest rates are lowered. Mann stated, “As the MPC reduces limits, we need to consider the varied impacts of policy on different parts of the yield curve and its implications for monetary policy transmission.”

With sentiment around risk still shaky, market participants are poised to monitor speeches from Federal Reserve officials this week for updated insights into the Fed’s interest rate trajectory. Although Fed Chairman Jerome Powell refrained from directly addressing monetary policy in his comments on Monday, traders are hopeful for more clarity from policymakers leading up to Friday’s Non-Farm Payroll (NFP) report.

In the UK, attention will soon shift toward the services PMI, which serves as a crucial indicator for the country’s largest economic sector. Additionally, BOE Governor Andrew Bailey and other members of the Monetary Policy Committee (MPC) will appear before Congress this Tuesday to discuss the Monetary Policy Report, offering further details on the recent rate cuts and the BOE’s evolving stance on policy.