13 Mar 2025

• The Pound Sterling trades sideways around 1.2950 against the US Dollar as investors gauge the consequences of US President Trump’s tariff policies.
• US CPI inflation cools down more than expected in February, US PPI data eyed.
• The BoE is expected to keep interest rates steady next week.

The Pound Sterling (GBP) is trading sideways around 1.2950 against the US Dollar (USD) on Thursday, following a recent peak of approximately 1.2990, which was reached the previous day. The GBP/USD pair is in a phase of consolidation as the US Dollar stabilizes after a two-week decline, while market participants assess the implications of US President Donald Trump’s tariff policies on diminishing inflationary pressures and the overall growth of the US economy. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, has seen a slight increase to around 103.65, recovering marginally from an over four-month low of 103.20 recorded on Tuesday.

On Wednesday, President Trump issued a warning regarding potential retaliatory tariffs on the European Union (EU) following the bloc's announcement of plans to impose counter-tariffs on US goods valued at 26 billion Euros (EUR). The EU has committed to implementing these counter-surcharges in response to Trump’s recent decision to impose 25% tariffs on global imports of steel and aluminum.

Concerns regarding a possible trade conflict between the EU and the US have provided temporary support for the US Dollar. Nevertheless, the release of softer-than-anticipated Consumer Price Index (CPI) data for February is likely to limit any upward movement of the Greenback. The CPI report revealed that both headline and core inflation rates slowed more than expected, falling to 2.8% and 3.1%, respectively. This development is detrimental to the US Dollar, as easing price pressures enhance expectations for a dovish stance from the Federal Reserve (Fed).

Daily market movers summary: Pound Sterling exhibits caution as market sentiment weakens  
The Pound Sterling is trading cautiously as Donald Trump's tariff policies have diminished the attractiveness of risk-sensitive investments. Market participants anticipate that Trump's 'America First' agenda will result in elevated inflation and a slowdown in the global economy, thereby increasing the demand for safe-haven assets.  
Domestically, investors are awaiting the release of the United Kingdom's (UK) monthly Gross Domestic Product (GDP) and factory data for January, scheduled for Friday. The UK GDP figures are particularly significant as they are closely monitored by Bank of England (BoE) policymakers, who are concerned about the economic outlook.  
During the February policy meeting, the BoE adjusted its GDP forecast for the year down to 0.75%, a reduction from the 1.5% estimate made in November. Additionally, BoE Monetary Policy Committee (MPC) member Catherine Mann expressed support for a more substantial interest rate cut of 50 basis points (bps) due to worries regarding growth prospects.  
The UK economy is projected to have expanded at a modest rate of 0.1%, in contrast to the 0.4% growth recorded in December. The monthly factory data is anticipated to show a decline for January 2025.  
Looking ahead, the next significant catalyst for the British currency will be the Bank of England’s (BoE) monetary policy announcement, which is expected next week. The BoE is likely to maintain interest rates at 4.5%, as most officials have indicated a preference for a 'gradual and cautious' approach to policy easing. In the February meeting, the BoE lowered interest rates by 25 bps.