GBP/USD commenced the week with upward momentum, driven by persistent USD selling pressure. Diminished confidence in the U.S. economy continues to exert downward pressure on the dollar. Divergent monetary policy expectations between the Federal Reserve (Fed) and the Bank of England (BoE) are also contributing to the pair’s appreciation. Trading near 1.3100 in early Asian trading, the pair remains poised to challenge Friday’s high. The prevailing bearish sentiment surrounding the USD suggests continued upward potential for the GBP/USD. The initial positive market response to the U.S. President’s tariff delay proved transient, overshadowed by escalating concerns regarding a potential U.S. recession stemming from the ongoing U.S.-China trade dispute. China’s imposition of 84% tariffs on U.S. goods and the U.S. increasing duties on Chinese imports have further eroded confidence in the U.S. economy, subsequently weakening the USD Index (DXY) to its lowest level since April 2022. Recent U.S. CPI data, indicating a 0.1% contraction in March and a core CPI increase of 2.8% year-on-year (below consensus), coupled with trade war anxieties, have amplified expectations of renewed Fed rate cuts. Markets are currently pricing in approximately 90 basis points of rate cuts by year-end. Conversely, market participants perceive a reduced likelihood of a BoE rate cut in the near term. This, alongside relative stability in equity markets, further weakens the safe-haven appeal of the USD and supports the GBP/USD exchange rate.
