The GBP/USD exchange rate remains relatively stable amid heightened risk aversion leading up to the Federal Reserve’s policy decision scheduled for Wednesday. Recent data from financial markets indicates that there is nearly a consensus that the Fed will keep interest rates within the 4.25%-4.50% range. The British Pound continues to face challenges, primarily due to increasing fears of stagflation in the UK, which have been exacerbated by weakening labor demand and persistent inflation.
As of Wednesday morning, the GBP/USD pair is trading around 1.2440 after experiencing losses in the previous session. The recent dip in the Pound’s value can be linked to rising concerns over potential tariffs introduced by US authorities, which aim to redirect production back to the United States and enhance domestic manufacturing capabilities.
In a move that has raised eyebrows in financial markets, the US administration announced plans to impose tariffs on various imports, including pharmaceuticals and metals. This initiative reflects an effort to protect US industries, which further contributes to market uncertainty and supports the US Dollar against the Pound.
Economic forecasts regarding the UK suggest a potential rate cut of 25 basis points by the Bank of England at its first meeting in February 2025, potentially lowering borrowing costs to 4.5%. Traders are concerned about the economic landscape, which appears sluggish.
Although UK Prime Minister Keir Starmer has expressed optimism about the economy’s trajectory, emphasizing growth as a top priority, the British Pound’s performance remains subdued. He also underscored the importance of strengthening trade ties with the United States, indicating a potential for improved economic relations, but the immediate sentiment in the market suggests caution amid prevailing economic uncertainties.
