- The Pound Sterling experienced a significant decline, breaching the 1.3200 level against the US Dollar, following the announcement of a US-China agreement to reduce tariffs by 115% for a 90-day period.
- The anticipated reduction in US tariffs is expected to create an environment conducive to potential interest rate cuts by the Federal Reserve.
- Market participants this week will be closely monitoring the forthcoming UK employment data and the US Consumer Price Index (CPI) figures, both scheduled for release on Tuesday.
The Pound Sterling (GBP) depreciated considerably, approaching 1.3140 against the US Dollar (USD), trading near its lowest level in a month on Monday. The GBP/USD pair witnessed a sharp decline as the US Dollar gained strength in response to the agreement between the United States (US) and China to reduce tariffs imposed during the trade disputes that originated in April. This tariff reduction is slated to take effect on Wednesday and will remain in place for 90 days, offering a temporary respite in the ongoing trade tensions.
The US Dollar Index (DXY), a measure of the Greenback’s value relative to a basket of six major currencies, surged to approximately 101.80, marking its highest point since April 10. This upward movement reflects increased investor confidence in the US Dollar following the tariff agreement.
US Treasury Secretary Scott Bessent, during a scheduled briefing held during European trading hours, announced that both Washington and Beijing had reached an understanding to lower import duties by 115%, according to a Reuters report. This figure suggests that the existing tariffs between the US and China are currently at 10% and 30%, respectively. Bessent clarified that while progress has been made, the issue of fentanyl has not yet been fully resolved. Consequently, tariffs on Chinese goods will remain at 30% for the time being, indicating that certain aspects of the trade relationship remain contentious.
The resolution of the US-China trade dispute is generally viewed as a positive development for a wide range of asset classes globally, particularly benefiting the US Dollar and US assets. These assets had previously experienced significant selling pressure as the trade war between the world’s two largest economies escalated following Beijing’s announcement of retaliatory tariffs. The Greenback had declined by over 6% since US President Donald Trump initially imposed reciprocal tariffs around what was termed Liberation Day. Investors are now assessing the long-term implications of this agreement, considering factors such as potential impacts on global supply chains, inflation, and economic growth forecasts. Furthermore, the market is anticipating further details regarding the specific terms of the tariff reductions and the mechanisms for monitoring compliance with the agreement.
