- The British pound is moving higher against its major counterparts despite worsening stagflation risks in the UK economy.
- UK government bond yields fell due to aggressive bets by the Bank of England.
- The risk premium in the US dollar has diminished as investors digest Trump’s tariff concerns.
The British pound rose against its major counterparts at the start of the week. The British currency rises despite investors’ concerns about the growing risk of stagflation in the UK economy. The UK’s global Purchasing Managers’ Index (PMI) report released on Friday showed that employment levels fell for the fourth straight month and cost pressures accelerated in the private sector, a scenario that leads to higher inflation as producers pass on the impact of higher input costs to customers.
The slowdown in labor demand appears to be a result of Treasurer Rachel Reeves’ announcement of an increase in employers’ National Insurance contributions.
The first signs of business conditions in 2025 add to the gloom over the UK economy, with companies cutting staff amid falling sales and concerns about business prospects. Inflationary pressures have re-emerged, suggesting a stagflationary environment, said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Deteriorating labor market conditions and rising price pressures are expected to add further problems to the Bank of England, which is set to announce its first monetary policy decision for 2025 on February 6. Traders are confident that the Bank of England will cut interest rates by 25 basis points to 4.5% by 2020.
Meanwhile, the Bank of England’s aggressive dovish bets also weighed on 30-year UK bond yields, falling more than 1% to nearly 5.15% on Monday.
The price of the British pound today
The table below shows the percentage change of the British Pound (GBP) against the major currencies listed today. The British pound was the strongest against the New Zealand dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -0.12% | -0.14% | -1.18% | -0.09% | 0.23% | 0.12% | -0.80% | |
| euro | 0.12% | 0.05% | -0.91% | 0.17% | 0.35% | 0.36% | -0.57% | |
| GBP | 0.14% | -0.05% | -1.27% | 0.12% | 0.27% | 0.33% | -0.62% | |
| JPY | 1.18% | 0.91% | 1.27% | 1.18% | 1.63% | 1.59% | 0.57% | |
| Canadian | 0.09% | -0.17% | -0.12% | -1.18% | 0.12% | 0.21% | -0.73% | |
| Australian dollar | -0.23% | -0.35% | -0.27% | -1.63% | -0.12% | 0.05% | -0.87% | |
| New Zealand dollar | -0.12% | -0.36% | -0.33% | -1.59% | -0.21% | -0.05% | -1.16% | |
| Swiss franc | 0.80% | 0.57% | 0.62% | -0.57% | 0.73% | 0.87% | 1.16% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the British pound from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Daily summary of market drivers: The British pound outperforms the US dollar
- The British pound regains all of its intraday losses and rises to nearly 1.2500 against the US dollar in the European session on Monday. GBP/USD bounces back as the US dollar declines after investors digest fears that US President Donald Trump will impose 25% tariffs on Colombia overnight.
- Over the weekend, President Trump threatened to impose tariffs on his South American trading partner for not allowing military flights carrying illegal immigrants into its territory. Trump later suspended the proposed tariffs after Colombia accepted his terms.
- The US Dollar Index (DXY), which tracks the value of the US currency against six major currencies, is falling to approximately 107.50 from an intraday high of 107.80. The dollar lost its risk premium as market participants expected President Trump to use tariffs only to negotiate deals.
- “This appears to feed a growing sense that Trump is falling short of protectionism compared to his pre-inauguration statements, and that some of these eventual tariff threats may not materialize as long as some concessions are made on trade,” ING said.
- Going forward, the primary catalyst for the US dollar this week will be the Federal Reserve’s monetary policy decision, which will be announced on Wednesday. The Fed will almost certainly keep interest rates unchanged in the 4.25%-4.50% range. Investors will pay close attention to Fed Chair Jerome Powell’s post-rate decision news conference, which is expected to face the question of whether the Fed will react favorably to Trump’s call for immediate rate cuts.
Technical Analysis: The British pound remains above the 20-day EMA
The British pound is revisiting the 1.2500 psychological resistance level against the US dollar. The near-term outlook for GBP/USD remains strong as it maintains its 20-day Exponential Moving Average (EMA), which is trading around 1.2380.
The 14-day RSI is moving above the 50.00 level from the 20.00-40.00 range, indicating that the downside momentum is over, at least for now.
Looking down, the January 13 low at 1.2100 and October 2023 low at 1.2050 will serve as key support areas for the pair. On the upside, the December 30 high at 1.2607 will act as major resistance.
Economic indicator
Federal interest rate decision
the Federal Reserve The Federal Reserve deliberates on monetary policy and decides on interest rates at eight pre-scheduled meetings annually. It has two mandates: keeping the inflation rate at 2%, and maintaining full employment. Its main tool for achieving this end is setting interest rates – at which banks lend and banks lend to each other. If it decides to raise interest rates, the US dollar (USD) tends to strengthen because it attracts more foreign capital inflows. If they lower interest rates, they tend to weaken the US dollar while draining capital to countries that offer higher returns. If interest rates are left unchanged, attention turns to the tone of the FOMC statement, and whether it is hawkish (expecting interest rates to rise in the future), or dovish (expecting interest rates to fall in the future).
Read more.
Next release: Wednesday 29 January 2025 at 19:00
repetition: irregular
consensus: 4.5%
former: 4.5%
source: Federal Reserve
