The Pound Sterling (GBP) is experiencing cautious trading and has shown weaker performance over the past week. This decline is mainly due to a cooling labor market and ongoing inflation, which may lead the Bank of England (BoE) to make careful policy choices next week. UK retail sales have fallen for the tenth month in a row as of July. However, there is a slight improvement, with the drop easing to -34 from June’s -46, indicating a milder contraction. Rising labor costs and economic uncertainty are impacting household spending and sales.

Bank Of England Policy Expectations

There’s increasing confidence that the BoE will cut interest rates in August. The GBP is currently weaker against the US Dollar, trading close to a two-month low at around 1.3350. This follows a favorable trade agreement between the US and EU that has boosted the Dollar’s attractiveness. Focus is now on high-level trade talks between the US and China, with expectations for an ongoing tariff truce. The GBP/USD exchange rate is also influenced by upcoming US JOLTS Job Openings data and the Federal Reserve’s monetary policy announcement, which is expected to maintain stability in interest rates. The technical outlook for GBP/USD remains negative, trading below important levels like the 20-day EMA, with the RSI under 40. Support is at 1.3140, while resistance is around 1.3790.

Trade And Tariff Implications

Tariffs are used to protect local industries and generate government revenue. While some economists support their use, others warn about potential negative long-term effects and trade wars. Donald Trump’s 2024 campaign highlights tariffs aimed at strengthening the US economy, targeting major importers such as Mexico, China, and Canada. The Pound Sterling is showing signs of weakness as we near the end of the month, continuing its underperformance from the past week. This cautious outlook is driven by a labor market that is cooling off and persistent inflation. These factors are pressuring the Bank of England ahead of its important policy meeting next week. Consumer spending is also affected, with retail sales dropping for the tenth consecutive month in July. Although the decline slowed from -46 to -34, high labor costs and economic uncertainty continue to squeeze household budgets. Recent statistics show unemployment rising to 4.4%, while wage growth remains elevated near 6.0%. Growing confidence suggests that the central bank might reduce interest rates at its August meeting, which is currently weighing on the currency. The Pound is weakest against the US Dollar, trading near a two-month low at around 1.3350, partly due to a favorable trade agreement between the United States and the European Union. We’re now focusing on global developments, including trade discussions between the US and China, where an extension of the current tariff truce is anticipated. We also look forward to the upcoming US JOLTS Job Openings data, which has recently been at multi-year lows, as well as the Federal Reserve’s policy announcement, with expectations that rates will remain steady. From a technical perspective, the GBP/USD outlook is bearish, trading below key moving averages and with the Relative Strength Index below 40. Given these conditions and the fundamental pressures, there are opportunities for using derivatives to position for further downside ahead of next week’s events. Buying put options could be a smart strategy to take advantage of a possible drop below the 1.3140 support level. The issue of tariffs adds complexity to the situation, as the current administration is focused on using them to support local industries. Historical data from the past decade shows that such protectionist measures can increase market volatility and lead to retaliatory actions. This possibility of trade disputes, especially with key partners like Mexico, China, and Canada, presents risks that derivative traders should watch carefully. Create your live VT Markets account and start trading now.

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