- The pound is currently trading below 1.3200 against the US dollar, following an agreement between the US and China to reduce tariffs by 115% over the next 90 days.
- This reduction in tariffs could allow the Federal Reserve to lower interest rates.
- Investors will be looking at UK employment and US CPI data, which will be released on Tuesday.
Pound Sterling (GBP) is near 1.3140 USD, reaching monthly lows on Monday. The GBP/USD pair has faced declines, especially as the US dollar strengthens following the tariff cuts from the US-China trade tensions, effective Wednesday for a period of 90 days.
The US Dollar Index (DXY), which measures the dollar’s performance against six major currencies, is expected to rise to approximately 101.80, its highest since April 10.
During a scheduled briefing, U.S. Treasury Secretary Scott Bessent confirmed that both Washington and China would reduce import tariffs significantly. According to Reuters, current US and Chinese tariff rates are at 10% and 30%, respectively. Bessent noted that while this agreement is a step forward, the fentanyl issue remains unresolved, leaving China’s tariffs unchanged at 30%.
The US-China trade resolution is beneficial for various asset classes globally, particularly the US dollar and related assets. The trade war had caused a significant drop in the greenback, which plummeted more than 6% when mutual tariffs were announced during President Trump’s administration.
Moreover, easing the trade tensions has lessened expectations for US consumer inflation as the Federal Reserve resumes its monetary policy easing that was paused in January.
Pound Sterling’s Outlook as Monetary Policy Remains Tight
- The pound is expected to gain against major currencies this week, except the US dollar. It shows strength as the Bank of England (BOE) maintains a “gradual and prudent” approach in its upcoming policy announcement.
- The BOE has reduced interest rates to 4.25%, a decrease of 25 basis points, though some committee members suggested keeping the rates unchanged. BOE deputy governor Claire Lombardelli indicated this cut aligns with ongoing economic conditions, suggesting further cuts may be forthcoming, given the still restrictive policy.
- On Friday, Pill explained his decision to cut rates based on expectations of long-term inflation pressures, while downplaying the effects of global trade risks on the UK economy, noting no drastic changes have occurred post-tariff announcements.
- This week, GBP/USD will be influenced by UK employment data for the three months ending in March and the US Consumer Price Index data due on Tuesday, with expectations of rising unemployment and slower wage growth in the UK, while US inflation is anticipated to increase.
- Prior to the US-China trade ceasefire announcement, key insights from US and Chinese officials indicated significant progress in high-priority trade discussions. A two-day meeting in Switzerland was seen as a critical step in easing the ongoing trade war.
- U.S. Trade Representative Greer expressed optimism about resolving the trade deficit through cooperation with Chinese partners, while China’s Minister highlighted this as a positive development for global trade.
Technical Analysis: Pound Sterling Declines Following H&S Pattern Failure
The pound has dipped below 1.3200 against the dollar at the start of the week. The market outlook has weakened due to the failure of the head and shoulders (H&S) pattern on the 4-hour chart. This breakdown suggests a bearish reversal, confirming the pattern’s reliability.
The GBP is trailing near the 200-period exponential moving average (EMA) around 1.3190, indicating a bearish trend.
The 14-period relative strength index (RSI) has dropped below 40.00, signifying stronger bearish momentum.
However, the significant resistance level stands at a 3-year high of 1.3445, while the psychological support is pegged at 1.3000.
