Pound Sterling flattens against US Dollar as investors await US-China trade talks

The Pound Sterling turns flat against the US Dollar around 1.3250 on Friday as investors sideline ahead of the US-China meeting over the weekend. Investors have cheered the US-UK trade deal announced on Thursday. The BoE cut interest rates by 25 bps to 4.25%, while the Fed left them unchanged in the range of 4.25%-4.50% this week. The Pound Sterling (GBP) recovers some intraday losses and flattens around 1.3250 against the US Dollar (USD) in European trading hours on Friday. The GBP/USD pair attracts bids as the US Dollar corrects slightly after a strong upside on Thursday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, retraces to near 100.40 from an almost a month high of 100.75 posted on Thursday. The USD Index rose sharply the previous day after the announcement of a trade deal between the United States (US) and the United Kingdom (UK). A strong upside move in the US Dollar reflects that financial market participants have cheered the first trade deal by the White House under the leadership of US President Donald Trump since the ‘Liberation Day’. This has boosted investors’ confidence that tariffs announced by Trump are more of a “tactic” to have a dominant position while negotiating trade deals with other nations, and have eased fears of higher import duties derailing the economy. However, the materialistic impact of the US-UK trade deal is limited as Washington already enjoys a trade surplus against London. Therefore, the real boost for investors’ confidence in the US economy would increase if the trade war between Washington and China de-escalates after their meeting in Switzerland on Saturday. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer have confirmed that they will meet their Chinese counterparts over the weekend, aiming to de-escalate the trade war. Ahead of the Sino-US trade discussions, US Commerce Secretary Howard Lutnick has also expressed confidence in improving trade relations between the world’s two largest powerhouses. “De-escalation with China is Bessent’s goal in talks,” Lutnick said in an interview with CNBC on late Thursday. Meanwhile, a report from The New York Post has shown that US President Trump could lower tariffs on China to the range between 50% and 54% as early as next week. However, White House spokesperson Kush Desai has not confirmed so. Daily digest market movers: Pound Sterling trades lower against its peers The Pound Sterling underperforms its peers, except the New Zealand Dollar (NZD), on Friday. The British currency has faced pressure since the announcement of the US-UK trade deal the previous day. Ahead of the deal announcement, the British currency was outperforming its peers after the Bank of England (BoE) reduced borrowing rates with a 7-2 vote split. The BoE lowered interest rates by 25 basis points (bps) to 4.25%, as expected, marking the fourth rate cut in the current monetary expansion cycle. BoE Monetary Policy Committee (MPC) member Catherine Mann and Chief Economist Huw Pill favored leaving interest rates unchanged, while investors expected all MPC members to vote for an interest rate reduction. Out of seven MPC members who supported monetary policy easing, two officials, Swati Dhingra and Alan Taylor, backed a bigger reduction of 50 bps. Other factors from the monetary policy announcement, which fetched bids for the Pound Sterling, were the retention of a “gradual and careful” policy-easing approach and an upwardly revised Gross Domestic Product (GDP) forecast for the current year. The BoE sees the economy expanding at a faster pace of 1%, up from 0.75% projected in the February meeting. Meanwhile, the US Dollar was also outperforming after the Federal Reserve’s (Fed) monetary policy announcement on Wednesday, in which the central bank left interest rates steady in the range of 4.25%-4.50% for the third time in a row. The Fed guided that monetary policy adjustments would be appropriate only if officials get clarity on how new economic policies by US President Trump will shape the economic outlook. Fed Chair Jerome Powell warned of stagflation risks in the face of tariffs announced by Trump. “Tariffs so far announced are significantly bigger-than-expected, and we will see higher inflation, and lower employment if large increases in tariffs as announced are sustained,” Powell said. Technical Analysis: Pound Sterling finds cushion near 1.3200 The Pound Sterling attracts bids near the three-week low of 1.3210 against the US Dollar on Friday. However, the outlook of the pair has turned uncertain due to the formation of a Head and Shoulders (H&S) chart pattern on the 4-hour timeframe after it revisited the three-year high around 1.3450. A breakdown of the H&S chart pattern leads to a bearish reversal, and its formation near a critical resistance increases its credibility. The Cable trades below the 50-period Exponential Moving Average (EMA), which is around 1.3305, suggesting that the near-term trend is bearish. The 14-period Relative Strength Index (RSI) seems vulnerable around 40.00. Should a bearish momentum trigger if the RSI falls below the 40.00 level. On the upside, the three-year high of 1.3445 will be a key hurdle for the pair. Looking down, the psychological level of 1.3000 will act as a major support area. Pound Sterling FAQs The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) 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, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE). The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects. Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall. Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance. Source: https://www.fxstreet.com/news/pound-sterling-flattens-against-us-dollar-as-investors-await-us-china-trade-talks-202505090820