The GBP/USD currency pair opens the week on a soft note, responding to renewed demand for the US Dollar amid a backdrop of geopolitical uncertainties and speculation surrounding Federal Reserve policy. Following a notable rise toward the mid-1.2700s last week, the pair has retreated below the 1.2700 level as traders show a preference for the USD due to shifting market sentiments.
Geopolitical tensions, particularly the impending trade policies of US President-elect Donald Trump, are significantly influencing the market. Trump’s assertion of potential 100% tariffs on various nations classified under the ‘BRICS’ group has triggered concerns over a possible escalation in trade conflicts. This situation may directly affect market stability, leading to a surge in demand for safe-haven assets, thereby pressuring the GBP/USD pair.
Furthermore, Trump’s plans for imposing substantial tariffs on major trading partners, including Mexico, Canada, and China, could have profound implications for the US economy. If these tariffs are enacted, consumer prices are likely to rise, potentially compelling the Federal Reserve to reconsider its current strategy of interest rate cuts. These developments have contributed to a cautious market atmosphere, allowing the USD to recover from significant losses experienced the previous week.
Despite the pressure on the GBP/USD pair, the potential for significant declines seems limited due to diminishing expectations for an interest rate cut by the Bank of England in the near term. Recent data have indicated that underlying price growth in the UK accelerated to an annual rate of 2.3% in October. This trend suggests a careful approach from the BoE, which may bolster the British Pound and lend some support to the currency pair.
As traders navigate through the week, many are likely to adopt a wait-and-see approach due to the impending release of crucial US economic data, starting with the ISM Manufacturing PMI. However, the primary focus will be on the highly anticipated Nonfarm Payrolls report on Friday, which could offer insights into the Federal Reserve’s monetary policy direction and significantly impact USD valuation.
