At the start of the trading week, the Pound Sterling (GBP) continued its remarkable rally against the US Dollar (USD), extending its winning streak to the fifth consecutive trading day. During Monday’s European session, the GBP/USD pair soared to nearly 1.3150, eyeing a return to the six – month high of 1.3207 reached on April 3. This upward movement was spurred by a confluence of factors, primarily the ongoing tit – for – tat tariff battle between the United States and China.
Investors reacted to the news by dumping the US Dollar, causing the US Dollar Index (DXY), which measures the greenback’s value against six major currencies, to plummet to around 99.00, its lowest level in three years. US President Donald Trump’s decision last week to pause reciprocal tariffs for 90 days had initially provided some relief, reducing the risk of a US recession. However, the exception for China in this tariff pause, coupled with China’s decision to raise counter – tariffs on US goods imports to 125% effective Saturday, kept the markets on edge.
US Economic Woes and Their Ripple Effects
Trump’s economic policies, aimed at bringing manufacturing facilities back to the US, have faced pushback from business owners. They remain skeptical, fearing that Trump might reduce import duties again after striking better deals with trading allies, including China. This uncertainty has contributed to a lack of confidence among businesses.
Consumer sentiment in the US has also taken a hit due to Trump’s protectionist policies. The University of Michigan’s preliminary Consumer Sentiment Index for April came in at a dismal 50.8, well below the estimated 54.5 and the previous reading of 57.0. This significant decline in consumer confidence has led to a sharp drop in the US Dollar, further fueling the Pound’s rise.
On the monetary policy front, the Federal Reserve (Fed) is under the spotlight. Investors widely expect the Fed to cut interest rates in the June meeting. However, Fed officials are hesitant to predict the economic outlook under Trump’s leadership. New York Fed Bank President John Williams remarked on Friday, “It’s hard to know with any precision how the economy will evolve.”
UK Economic Data: A Key Driver for the Pound
The Pound Sterling’s performance in the coming days will hinge on crucial economic data from the United Kingdom. On Tuesday, the UK will release employment data for the three months ending February, followed by the Consumer Price Index (CPI) data for March on Wednesday.
The UK labor market is expected to show that the ILO Unemployment Rate remained stable at 4.4%. However, average earnings, including bonuses – a key indicator of wage growth – are projected to have grown at a slower pace of 5.7%, down from 5.8% in the three months ending January. The core CPI, which excludes volatile items like energy, food, alcohol, and tobacco, is estimated to have risen by 3.4% year – over – year in March, slower than February’s 3.5% increase.
Slower wage and core CPI growth could lead to increased market expectations that the Bank of England (BoE) will cut interest rates in the May meeting. BoE’s former deputy governor, Charlie Bean, warned last week in an interview with The Guardian that Trump’s tariff policies are causing businesses to delay investment decisions. Bean advocated for an aggressive monetary policy easing, suggesting that the central bank should cut interest rates to 4%.
UK Chancellor of the Exchequer Rachel Reeves also highlighted the challenges the UK faces due to Trump’s tariffs. In her column in Observer over the weekend, Reeves stated that Trump’s policies will have a “profound” effect on the UK. She emphasized the need to navigate the brewing trade war and strengthen the UK’s position in the global market, expressing her ambition to forge a new trade relationship with the European Union and engage in constructive trade talks with the US.
Technical Outlook for the GBP/USD Pair
From a technical analysis perspective, the Pound Sterling’s jump to near 1.3150 on Monday is a promising sign. All short – to – long – term Exponential Moving Averages (EMAs) are sloping upward, indicating a positive near – term outlook for the GBP/USD pair.
The 14 – day Relative Strength Index (RSI) has climbed above 60.00. If the RSI can maintain this level, it is likely to signal a bullish momentum for the pair.
Looking at potential support and resistance levels, the 61.8% Fibonacci retracement level, plotted from the late – September high to the mid – January low and located near 1.2927, will act as a crucial support zone. Conversely, the three – year high of 1.3430 will serve as a significant resistance zone for the GBP/USD pair.
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