Pound US Dollar Exchange Rate Tests 1.228 on Renewed Trade War Concerns

January 9, 2025 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate Tests 1.228 on Renewed Trade War Concerns

The Pound to US Dollar exchange rate (GBP/USD) drifted lower on Wednesday as risk-off sentiment took hold of global markets.

The US Dollar (USD) advanced on Wednesday, benefiting from a shift in market sentiment as concerns over trade tensions between the US and China resurfaced.

Renewed fears of a trade war were triggered by speculation that the US could reintroduce steep tariffs on Chinese imports, potentially disrupting global economic growth.

Although a report from the Washington Post claimed some of Trump’s advisors are advocating for a more cautious approach to tariffs, the former president dismissed these claims as ‘fake news’, doubling down on his tariff rhetoric.

During his previous campaign, Trump referred to tariffs as his favourite word in the English lanuage and hinted at duties as high as 60% on Chinese goods, adding to market unease.

The US Dollar also found support ahead of the Federal Open Market Committee’s (FOMC) meeting minutes.

Investors will be looking for confirmation that Fed Chair Jerome Powell’s hawkish stance on interest rates are shared by other policymakers, which could bolster USD exchange rates further.

The Pound (GBP) struggled to gain traction on Wednesday, weighed down by concerns over the UK’s fiscal outlook.

UK borrowing costs have risen sharply in recent weeks due to expectations of weaker economic growth.

This has raised questions about whether Chancellor Rachel Reeves will be able to deliver on her fiscal promises without resorting to tax increases.

With the UK government inching closer to breaching its self-imposed fiscal rules, the prospect of higher taxes has added to the pressure on Sterling.

Looking ahead, the GBP/USD exchange rate may experience further volatility as markets turn their attention to upcoming US labour market data.

The release of non-farm payroll figures on Friday could drive movement in the US Dollar. Should the data indicate robust job growth, it may reinforce expectations of tighter monetary policy from the Federal Reserve, strengthening the USD. Conversely, weaker-than-expected payroll data could weigh on the US Dollar.

In the meantime, the lack of significant UK economic releases may leave the Pound vulnerable to external factors through the latter half of the week.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts