Pound Drifts Lower Against Dollar as Sterling Unmoved by UK Government Growth Agenda

January 30, 2025 - Written by David Woodsmith

STORY LINK Pound Drifts Lower Against Dollar as Sterling Unmoved by UK Government Growth Agenda

The Pound to Dollar exchange rate (GBP/USD) has been unable to make headway and drifted lower to near 1.2410 as the government’s growth strategy had little near-term impact.

The proposals had been flagged in advance, and any dividends will be over the longer term while US and dollar moves remain dominant.

According to Scotiabank, “should losses extend through 1.2420 (minor bull channel support), the GBP drop is liable to extend to the low/mid 1.23s.”

Michael Pfister, FX analyst at Commerzbank, commented on the trade policies; "Until the tariffs are officially implemented, there is a good chance of volatility."

ING added, “If US tech stocks enjoy another calm day and the Fed remains cautious on easing as we expect, the dollar should consolidate gains as the revamped universal tariff risk justifies the current short-term USD overvaluation.”

Chancellor Reeves has outlined the government’s growth strategy.

She reiterated the focus on domestic supply-side issues, including relaxing planning regulations.

There are ambitious plans to create an Oxford-Cambridge growth corridor with infrastructure projects in Northern England.

As far as Heathrow is concerned, she confirmed that the government will push ahead with a third runway.

Reeves is committed to working closely with the Trump Administration to boost growth and forge deals with China and India.

Reeves also pledged to strengthen ties with the EU.

This followed comments by the EU trade commissioner that the UK could join a customs zone called the Pan Euro Mediterranean Convention.

US developments are still likely to dominate in the short term with the Federal Reserve policy decision and underlying uncertainty over US trade tariffs.

According to ING, “After 100bp of rate cuts, the Fed has signalled it needs evidence of economic weakness and more subdued inflation prints to justify further policy loosening. President Trump’s low tax, light-touch regulation policies should be good news for growth, while immigration controls and trade tariffs provide upside risk for prices, suggesting we could have a long wait for the next cut.”

MUFG noted that consumer inflation expectations have increased, Which suggests the FOMC will also not want to signal a dovish message. While Powell is unlikely to rule out a March rate cut he will likely stress incoming data as key to determining decisions going forward.

MUFG also notes the ongoing uncertainty surrounding trade tariffs and added, “If these tariffs are still seen as possible, we’d expect the dollar to have rebounded notably by the end of the week.”

According to Pepperstone strategist Michael Brown "Policy uncertainty remains extremely high, and it is tough to sit in short USD positions for any length of time so long as these tariff threats continue to dangle over the market.”

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TAGS: Pound Dollar Forecasts