The Pound Sterling drops below 1.3600 against the US Dollar as the market pays close attention to upcoming trade deals ahead of the US tariff deadline on July 9. The GBP/USD rate is falling while the US Dollar remains stable amid expectations for trade updates. The US Dollar Index rises 0.35%, getting close to 97.45, as US Treasury Secretary shows optimism about new trade deals. Washington has announced agreements with the UK, Vietnam, and a limited deal with China, with plans to finalize a deal with India soon.

Trump’s Tariff Strategy

The US is preparing to send letters to countries without agreements, extending tariffs for 90 more days. Trump aims to inform twelve countries about the initial tariff levels for their exports to the US. The Pound Sterling faces pressure due to potential UK budget issues connected to increased welfare spending, which may lead to tax hikes in the Autumn Budget. These fiscal changes could cost £4.8 billion by 2029-2030, drawing attention to GDP and factory data due this Friday. The Bank of England is predicted to lower interest rates by 25 basis points to 4% in August, with more cuts expected in November and December. Technical analysis indicates that GBP/USD is struggling below the 20-day EMA, with major support at 1.3500 and resistance near 1.3800. A weaker Pound has slipped below 1.3600, mainly due to growing domestic budget concerns and a firm Dollar. Recent trends reflect an increasing focus on trade developments, especially progress in US negotiations as the July 9 tariff deadline approaches. Traders are keeping a close eye on the US Dollar’s ascent, with the Dollar Index approaching 97.50. This strengthening follows Mnuchin’s remarks on new trade partnerships, including agreements with Vietnam and the UK, while preparing for talks with India.

Economic Forecast And Fiscal Policies

On the other hand, the UK faces potential financial challenges, with rising welfare expenses straining public finances. This situation goes beyond just the budget. The Chancellor’s forward guidance suggests possible tax changes in autumn, with an estimated extra £4.8 billion added to spending through 2029-2030. If this trend continues, it could negatively affect domestic output and public sentiment. We’re expecting new GDP and manufacturing data on Friday, and a weaker report could be likely, especially if factory output declines. Monetary policy expectations are changing. A rate cut of 25 basis points is widely expected at the August meeting, which would reduce the bank rate to 4%. There are predictions for another cut in November and possibly a third in December. This marks a significant shift from earlier this year when policymakers were more cautious. Those monitoring the forward curve will recognize this signal of a more dovish stance among rate-setters. Technically, the GBP/USD pair cannot maintain levels above the 20-day EMA, indicating a lack of strength for the Pound. The important support level at 1.3500 remains in sight, having provided support in previous sessions, while any upward movement is likely to encounter resistance near 1.3800. Given current trading volumes, these levels may be important for short-term strategy. In light of this wider shift, it’s crucial to keep an eye on cross-currency funding costs and short-term interest rate spreads. We’re closely monitoring weekly positioning, looking for any sharp rise in speculative flows around upcoming economic data or trade news. The timing of Washington’s planned letters to countries without deals could spark market volatility if perceived as an escalation. Adjusting exposure appropriately, especially around scheduled economic releases and expected policy statements, can help reduce the risk of significant market swings. Recent upward movements have tended to fall off quickly, suggesting that bullish sentiment may not last long. Participants should remain cautious and not take on too much risk, particularly as summer trading conditions become less active. Create your live VT Markets account and start trading now.

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