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Pound Sterling Decline Against US Dollar
The Pound Sterling (GBP) has fallen to a near one-month low against the US Dollar (USD) at approximately 1.3140. This decline is attributed to the US Dollar’s strengthening, following an agreement between the US and China to reduce tariffs for 90 days commencing Wednesday.
The US Dollar Index (DXY) has surged to around 101.80, reaching its highest level since April 10. US Treasury Secretary Scott Bessent mentioned an agreement to lower import duties between the US and China by 115%, with current tariffs at 10% and 30%, respectively.
This trade resolution may ease US consumer inflation expectations, potentially allowing the Federal Reserve to continue its paused monetary policy easing cycle. Meanwhile, the Pound Sterling remains stable against other major currencies, as the Bank of England maintained its cautious approach in monetary policy.
The GBP/USD pair will be impacted by upcoming UK employment data and US Consumer Price Index (CPI) data. The UK data should show a rise in the jobless rate and slower wage growth, while the US core inflation may have increased.
Technically, the Pound Sterling has experienced a breakdown in the Head and Shoulders formation, indicating a bearish trend. Key resistance is at 1.3445, with significant support at 1.3000.
Impact Of Tariff Reduction And Inflation Trends
Given the recent breakdown in the £/$ pair, many participants will likely remain defensive in the short term, particularly as price action reflects the confirmation of a bearish Head and Shoulders pattern. This formation, commonly associated with a reversal in trend direction, suggests the momentum has shifted firmly away from Sterling, and unless a material shift occurs in macroeconomic inputs, the market may continue to respect the wider downside structure. With resistance now clearly defined around the 1.3445 handle, it will take substantial catalysts to drive prices back toward that level. We view 1.3000 as the next immediate area of interest, particularly for those managing downside risk exposure.
What underpins this slide isn’t just technical pressure. Bessent’s remarks on the tariff reprieve with China point to a multi-layered development. The 115% planned reduction — affecting goods hit under both 10% and 30% brackets — is, to put it plainly, a proportionally large rollback. Should these reductions proceed without disruption, US import costs are likely to fall, reducing pricing pressure on domestic goods. That, in turn, feeds directly into inflation gauges such as core CPI. What does this mean for policy expectations? A potentially softer inflation read lends credibility to the Fed holding rates steady for longer, or even re-approaching rate cuts if subsequent data validates the move.
From the FX side, the strength in the DXY around 101.80 says it all. It’s not merely a bounce—it’s a return to levels not seen since April. Momentum here isn’t yet stretched according to standard oscillators, which implies there is room for the dollar to continue climbing, particularly if upcoming inflation data reinforces the narrative of domestic strength. It’s worth noting: a higher DXY does not occur in a vacuum. Cross rates will feel the effects, and as a result, pairs such as £/$ could continue to drift lower until new catalysts emerge.
Looking toward UK data, expectations are pointing in a direction that few would consider supportive for the Pound. A tick higher in unemployment alongside tempered wage dynamics does very little to justify a more aggressive rate stance by the central bank. The BoE, as we’ve seen, has adopted a calculated position, opting to await more consistent improvement in inflation numbers before shifting gears decisively. As a result, traders may see less flexibility to price in rate hikes, and even begin folding in the potential for easing if disinflation gains traction.
From our side, any short-term retracements in the £/$ pair back toward the 1.3170–1.3220 zone may offer opportunities to reduce risk exposure or even re-enter shorts, depending on position sizing and broader risk tolerance. We’re not expecting a sustained bounce unless US CPI underwhelms materially or UK job data unexpectedly surprises to the upside — both scenarios currently seen as low probability given prevailing trends.
One underappreciated dynamic in all this: volatility measures across GBP pairs have stayed subdued, implying that many still expect this move lower to be orderly. However, history has shown that when expectations become one-sided and open interest piles into similar directional bets, snapbacks can occur with speed. Therefore, it’s less about second-guessing the direction and more about maintaining options around positioning flexibility. Keeping tight stops just above the resistance boundary or gradually staggering take-profits through 1.3050 into 1.3000 can help navigate any short-term volatility compression or surprise reversal moves.
In sum, the broader move reflects both fundamental re-rating and technical validation. Until the next round of macro data forces a repricing, this current path of least resistance—marked by steady dollar strength and a softening domestic backdrop for Sterling—is likely to remain preferred. Let’s keep a close eye on the positions around upcoming macro data prints, particularly any deviation from expected core CPI trends in the States and labour market metrics in Britain. Expect things to move quickly if surprises emerge.
