GBP/USD pair extends its downside to near 1.2580 during the early European session on Friday. Tariff uncertainty from US President Donald Trump undermines the Pound Sterling (GBP) against the US Dollar (USD). The US Personal Consumption Expenditures (PCE) Price Index for January will be the highlight later on Friday.
Trump met with UK Prime Minister Keir Starmer late Thursday, and President Trump was quick to announce that there might be trade tariffs imposed on the UK as well unless ambiguous terms of a trade deal with the US are agreed upon within an undetermined deadline. Investors will closely watch the developments surrounding further Trump's policies. Any signs of escalating trade tensions could lift the Greenback and create a headwind for GBP/USD.
Data released by the US Bureau of Economic Analysis (BEA) on Thursday showed that the Gross Domestic Product (GDP) expanded at an annual rate of 2.3% in the fourth quarter (Q4). This figure matched the initial estimate and came in line with the market consensus.
Looking ahead, investors will take more cues on the US PCE inflation data for January, which is due on Friday. This report could influence market speculation for the Federal Reserve's (Fed) monetary policy outlook. According to the CME FedWatch tool, the markets are now pricing in nearly
68% odds that the Fed will cut its interest rate in the June policy meeting after holding them in the March and May meetings.
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.
Source: Fxstreet
