Pound Sterling gains against USD as investors see Trump’s tariff policies less fearful.

The Pound Sterling rises around 1.2610 against the US Dollar while investors wait for more developments in President Trump’s international policies.
The FOMC minutes showed on Wednesday that officials are worried about deepening upside risks to inflation.
Investors await the UK Retail Sales report for January and the preliminary S&P Global UK/US PMI data for February, scheduled for Friday.

The Pound Sterling (GBP) moves higher slightly above 1.2600 against the US Dollar (USD) in Thursday’s European session. The GBP/USD pair gains as the market sentiment is slightly favorable for risk-perceived currencies, with investors gaining confidence that United States (US) President Donald Trump’s tariff agenda won’t be as fearful as expected.

On Wednesday, Donald Trump announced that a trade deal with China is “possible”. His comments were optimistic even though he announced 10% tariffs on all imports from the Asian country earlier this month. On Tuesday, Trump also announced that he is planning to impose 25% tariffs on imports of foreign cars, pharmaceuticals and semiconductors. There is no detailed plan for all tariff threats, which he has announced till now. While Trump was expected to start imposing levies soon after returning to the White House.

Meanwhile, growing confidence over potential Russia-Ukraine truce has also improved market mood. President Trump has confirmed that he will hold more talks on a Russia-Ukraine peace deal after discussing the issue with Russian diplomats in Saudi Arabia without including Ukraine and Europe. However, Ukraine has said that it won’t agree to a deal that would be made on its behalf.

However, the outlook for the US Dollar still seems upbeat on the monetary policy front. The Federal Open Market Committee (FOMC) minutes for the January meeting showed on Wednesday that officials are expected to keep interest rates in the current range of 4.25%-4.50% for longer.

Fed policymakers were more concerned about the upside risks to inflation due to Trump’s potential tariff policies than risks to the labor market. The FOMC Minutes also indicated that business owners plan to pass on the impact of higher input costs to consumers. Even though tariffs on critical imports would boost local production, those products won’t be competitive in terms of manufacturing cost, given the higher United States (US) labor costs compared to those of its trading partners.

Such a scenario will boost inflationary pressures and prevent Federal Reserve (Fed) officials from continuing the monetary expansion cycle sooner, which started in September 2024.

Daily digest market movers: Pound Sterling continues to underperform on a broader note

The Pound Sterling remains fragile against its major peers as investors are concerned over the United Kingdom’s (UK) economic outlook. Bank of England (BoE) Governor Andrew Bailey warned this week that the economic growth is expected to remain sluggish and sees the labor market softening.
The British currency attempted to gain ground after the release of a hotter-than-expected UK Consumer Price Index (CPI) report for January on Wednesday but failed to do so. Governor Bailey had already cautioned that a short-term uptick in inflation is expected due to volatile energy prices, but that won’t be persistent.
Year-on-year headline CPI rose by 3%, faster than estimates of 2.8% and the December reading of 2.5%. In the same period, the core CPI – which excludes volatile components of food, energy, alcohol, and tobacco – grew by 3.7%, as expected, faster than the former reading of 3.2%.
Though the acceleration in inflationary pressures should be temporary, it will not allow the BoE to ease monetary policy further. The central bank reduced its borrowing rates by 25 basis points (bps) to 4.5% in its policy meeting, which took place on February 6 but guided a cautious policy easing outlook.
Going forward, investors will focus on the UK Retail Sales data for January, and the flash S&P Global UK/US Purchasing Managers Index (PMI) report for February, which will be released on Friday.

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