The British pound experienced a brief but significant dip below the 1.3200 threshold against the US dollar on Thursday, marking a six-month low. This decline, however, was quickly followed by a resurgence as the US dollar broadly weakened, driven by market reactions to the Trump administration's recently announced "reciprocal" and coordinated tariffs. Although the initial market response was delayed until after the US market closure on Wednesday, the lingering effects of the tariff announcement continued to weigh heavily on investor sentiment. Adding to the prevailing unease, the Institute for Supply Management's US services PMI data revealed a concerning nine-month low of 50.8. This sharp decline, representing the most rapid month-on-month contraction since the pandemic's onset, highlighted the fragility of business activity and consumer confidence in the US. The imposition of tariffs further exacerbated these concerns, casting doubt on the potential for a swift recovery in market sentiment. The Trump administration's decision to implement a 10% tariff on all imports, effective April 5, with "reciprocal" tariffs following on April 9, signaled a significant shift in US trade policy, prompting widespread market adjustments.
Fitch Ratings further amplified concerns regarding the economic implications of the tariffs, projecting that US economic growth would fall below their already bearish March forecast. The agency also warned that the tariffs would have a ripple effect on the Federal Reserve's monetary policy, potentially delaying anticipated interest rate cuts as the central bank closely monitors the tariffs' impact on inflation and employment. This added layer of uncertainty contributed to the heightened volatility observed in the GBP/USD pair. Despite the weakening US dollar, which triggered a surge in buying activity for the British pound, the GBP/USD pair encountered significant technical resistance at the 1.3200 level. This resistance prompted a pullback, pushing bids back towards the 1.3100 area. However, the pair's overall trajectory remained bullish, having broken out of its recent consolidation range and positioned for further gains. The pair's continued trading above its 200-day exponential moving average (EMA) at 1.2735 reinforced this bullish outlook, suggesting sustained upward momentum. The interplay of these factors, encompassing the Trump administration's tariff policies, concerning US economic data, and technical trading dynamics, contributed to the observed fluctuations in the GBP/USD pair. The market's response to these developments highlighted the sensitivity of currency valuations to geopolitical events and economic indicators.
