GBP/USD falls toward 1.3300 as Trump signals optimism over potential US-China trade deal
- GBP/USD weakens as cautious sentiment prevails ahead of the US ISM Manufacturing PMI release.
- Trump boosts market optimism with remarks on a US-China trade agreement, stating there's a "very good probability" of a deal.
- The Pound Sterling remains under pressure amid growing dovish expectations for the Bank of England's upcoming policy stance.
The GBP/USD pair continues its downward trajectory for the third straight day, trading around 1.3310 during Thursday’s Asian session. Market participants appear to be positioning cautiously ahead of the US Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI), set to be released later in the North American session.
The US Dollar (USD) is gaining strength, buoyed by comments from US President Donald Trump during a NewsNation Town Hall interview early Thursday. Trump expressed optimism about a possible trade deal with China, stating there is a "very good probability we'll reach a deal." He emphasized that any agreement must align with US interests and also hinted at potential future deals with India, South Korea, and Japan. Additionally, Trump announced that a trade agreement with Ukraine had been finalized earlier in the day.
The US Dollar Index (DXY), which tracks the USD’s performance against a basket of six major currencies, is also climbing for the third consecutive day, trading near 99.70 at the time of writing. The Greenback rally comes as traders scale back expectations for a 100 basis point rate cut by the Federal Reserve (Fed) this year, following recent economic data that signaled weakness in the US economy.
US Gross Domestic Product (GDP) contracted by 0.3% annualized in the first quarter of 2025, missing the forecast for 0.4% growth and sharply down from the 2.4% expansion in the previous quarter. Meanwhile, the core Personal Consumption Expenditure (PCE) Price Index—a key inflation gauge—rose 2.6% year-on-year in March, in line with expectations but slower than February’s 2.8% increase.
Across the pond, the Pound Sterling (GBP) remains under pressure as market sentiment turns increasingly dovish toward the Bank of England (BoE). Traders are now pricing in a 25 basis point rate cut at the BoE's upcoming policy meeting on May 8. Expectations for easing have intensified amid concerns that the newly announced US tariff policy could reduce global inflationary pressures and dampen economic growth in the United Kingdom (UK).
BoE policymaker Megan Greene, speaking at the Atlantic Council on Friday, said the potential trade conflict would have a "net disinflationary" impact on the UK economy. Greene also highlighted labor market risks, pointing to the recent rise in employers’ national insurance contributions from 13.8% to 15%, which took effect this month.
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.