The Pound Sterling has fallen against the US Dollar due to rising fiscal worries in the UK. A new welfare spending bill by the Labour government is likely to increase debt by £4.8 billion by 2029-2030, leading investors to sell UK bonds. Chancellor Rachel Reeves stated that the government would manage this additional burden, but specifics on how remain unclear. The British Pound has also weakened against the Australian Dollar, with GBP/USD trading close to 1.3600, influenced by recent US trade policies.

US Tariffs on Japan

US President Trump announced a 25% tariff on imports from Japan, starting in August, which has impacted market reactions. The US Dollar Index is holding steady around 97.35, while ongoing discussions between the US and Japan for a trade agreement continue. Market players are awaiting the FOMC minutes and UK economic data for further guidance. The Federal Reserve has maintained interest rates, but rising US tariffs have created uncertainty about the economic outlook. The UK’s GDP data is expected to show a slight growth of 0.1%, indicating a mild recovery from a prior decline. Technically, the Pound is close to the 20-day EMA, with support and resistance levels set at 1.3500 and 1.3800, respectively. The upcoming UK GDP report is crucial, with expectations pointing to 0.1% growth. Traders have noticed the Sterling slipping, mainly due to increased concern over the UK’s fiscal health, driven by the newly proposed welfare spending. The £4.8 billion in extra debt over the next few years has raised skepticism in the market, leading to a quick sell-off in gilts. This reaction occurred even before a detailed funding plan was presented, highlighting the market’s sensitivity to fiscal expansion during this uncertain time. Reeves has assured that the government aims to meet its financial commitments, but without a clear strategy, the markets interpreted this more as a reassurance than a plan. Consequently, Sterling lost ground against both the Dollar and the Australian Dollar. GBP/USD has settled around 1.3600, partly due to global trade policy turmoil, but mainly influenced by changing investor interest in UK assets. At the same time, the US is also feeling the effects of political decisions impacting market changes. Trump’s tariff announcement on Japan, set for August, has added to risk concerns. The US Dollar Index’s steady close to 97 reflects relative safety rather than strength. As US-Japan trade talks continue, the uncertainty is affecting broader market risks.

UK Economic Indicators and FOMC Minutes

We’re closely monitoring two key developments: the FOMC minutes, which may show how policymakers are addressing growth and inflation, and the UK’s GDP data. The expectation is for a modest increase of 0.1%, which, while not remarkable, suggests some improvement. If the data falls short or shows weaknesses in specific sectors, it could push Sterling lower, especially if there are any hawkish signals in the Fed minutes. From a technical perspective, GBP/USD is currently between the 1.3500 and 1.3800 levels. The pair tested the 20-day Exponential Moving Average but hasn’t broken through, indicating market uncertainty. We are paying close attention to these levels, as any breach—especially if tied to changes in interest rate forecasts or unexpected GDP results—could trigger a shift in automated trading strategies. Looking ahead, attention should focus on new data and fiscal comments from UK officials. If inflation surprises persist or if borrowing costs rise faster than anticipated, this could tighten financial conditions at home. These factors must be considered when adjusting exposure, particularly regarding weekly or monthly derivative positioning. Traders may start trimming risk if clarity doesn’t improve soon. Create your live VT Markets account and start trading now.

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