08 Apr 2025

The Pound Sterling has rebounded to approximately 1.2800 against the US Dollar, as traders have increased their expectations for a dovish stance from the Federal Reserve in the upcoming June meeting. Concerns regarding the US-China trade conflict may push the UK economy towards a recession. Federal Reserve official Goolsbee remarked that there is no one-size-fits-all solution for the central bank to address stagflation.

During Tuesday's European trading session, the Pound Sterling (GBP) recovered to nearly 1.2800 against the US Dollar (USD), bouncing back from a low of 1.2708 reached on Monday, which was the lowest point in over a month. The GBP/USD pair has gained ground as the US Dollar resumes its downward trend following a brief recovery over the past two trading days. The US Dollar Index (DXY), which measures the Greenback's performance against six major currencies, has fallen to around 102.90.

The US Dollar continues to weaken as traders grow more optimistic that the Federal Reserve may lower interest rates sooner this year to mitigate concerns about a potential economic downturn in the United States. The CME FedWatch tool indicates that traders are nearly convinced the central bank will restart its monetary policy easing in the June meeting, having paused this action in January.

The introduction of reciprocal tariffs by President Donald Trump, along with apprehensions about retaliatory measures from China and the Eurozone, has heightened the risk of a recession in the US. Investment banking firm Goldman Sachs has increased its estimate of the likelihood of a US recession to 45%, up from the previous 35% forecast made last week.

The remarks from Federal Reserve officials suggest uncertainty regarding the impact of the President's protectionist policies on the economic and monetary policy landscape. In a CNN interview on Monday, Chicago Federal Reserve Bank President Austan Goolsbee expressed concern, stating, "The anxiety is if these tariffs are as significant as those threatened by the US, and if there is substantial retaliation followed by counter-retaliation, it could lead us back to the conditions we experienced in 2021-22 when inflation was spiraling out of control," according to a report by Reuters.

Goolsbee further emphasized that it is essential to focus on the "hard data," noting that if the economy experiences "stagflation," there is no "one-size-fits-all solution" for the Fed's response to such a situation.

Daily market movers summary: Pound Sterling declines against riskier currencies

On Tuesday, the Pound Sterling lagged behind its riskier counterparts as investors brace for potential repercussions from Donald Trump’s tariffs, which could trigger a slowdown in the UK economy. Analysts suggest that the primary focus of the trade conflict will be between the US and China, especially since China has announced retaliatory actions despite Trump’s admonition against such measures following the imposition of reciprocal tariffs on April 2. While the Eurozone is also preparing to respond to Trump’s latest tariffs, it is anticipated that the region will approach negotiations with caution.

A significant trade conflict between the US and China could lead to Chinese companies offloading their products into alternative markets. Given the competitive edge of Chinese manufacturers in producing goods at lower costs than their global counterparts, UK businesses may struggle to compete in a pricing battle. This situation could result in a notable downturn in UK business activity, adversely affecting the Pound Sterling.

UK Prime Minister Keir Starmer has acknowledged the impending pricing war and has committed to safeguarding domestic companies from the impact of Trump’s tariffs. "We stand ready to use industrial policy to help shelter British business from the storm," Starmer stated over the weekend.

Rising concerns regarding the UK’s economic stability may compel officials at the Bank of England (BoE) to implement a more aggressive monetary easing strategy this year. The BoE has already reduced interest rates during one of its two policy meetings in 2025 and is anticipated to make two additional cuts this year.

This week, the performance of the British currency will be influenced by the US Consumer Price Index (CPI) data for March and the UK Gross Domestic Product (GDP) figures for February, which are set to be released on Thursday and Friday, respectively.

The Pound Sterling has rebounded to approximately 1.2800 against the US Dollar on Tuesday, following a period of significant selling pressure over the past two trading days. The GBP/USD pair is currently trading below the 20-day Exponential Moving Average (EMA), situated around 1.2887, indicating a bearish trend in the short term.

The 14-day Relative Strength Index (RSI) has declined to nearly 40.00. Should the RSI fail to maintain this level, it could initiate a new wave of bearish momentum.

On the downside, the 38.2% Fibonacci retracement level, drawn from the late September peak to the mid-January trough, near 1.2600, will serve as a crucial support area for the pair. Conversely, the psychological level of 1.3000 will function as a significant resistance point.