- The Pound Sterling recovers above 1.2400 against the US Dollar as investors worry that a trade war between the US and China could intensify.
- China retaliates to US President Trump’s tariffs and announces levies on various imports from the US.
- This week, investors will keenly focus on the BoE’s policy decision and the US NFP data.
The Pound Sterling (GBP) underperforms against its major peers, except safe-haven assets, on Tuesday as investors await the Bank of England’s (BoE) monetary policy decision, which will be announced on Thursday.
According to money market expectations, traders have priced in an 81 basis points (bps) interest rate reduction this year, suggesting there will be more than three 25 bps interest rate cuts by December. The first is seen coming this week, which will push borrowing rates lower to 4.50%.
Meanwhile, yields on 30-year United Kingdom (UK) gilt have declined to near 5.04%, the lowest level seen in almost two weeks, in anticipation that US President Trump won’t pick a lethal trade fight with Britain. Over the weekend, Trump’s comments indicated that he is not sure about imposing tariffs on the UK and he was sure that a deal could be made as Prime Minister Keir Starmer has been “very nice”.
UK gilt yields had a strong run from November 29 to January 13 as investors were worried about the economic outlook on the back of potential tariff hikes from the US.
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