The Pound Sterling extended its downside movement to near 1.2570 against the US Dollar during the European session on Friday. This fluctuation comes amid growing expectations that the Bank of England (BoE) might pursue a moderate policy-easing cycle. Meanwhile, US President Donald Trump has proposed an additional 10% tariffs on Chinese imports, adding further volatility to the markets. Investors remain cautious following Trump's clarification on the timeline for 25% import duties on Canada and Mexico, alongside reciprocal tariffs.
The British currency struggled to maintain its position above the 38.2% Fibonacci retracement level from the end-September high to the mid-January low downtrend against the US Dollar, hovering around 1.2610 on Friday. This comes as the US Bureau of Economic Analysis is set to release the Personal Consumption Expenditures (PCE) Price Index data for January at 13:30 GMT, which could further influence currency movements.
The Pound Sterling's recent performance is heavily influenced by monetary policy decisions from the Bank of England. The BoE is contemplating lowering interest rates to make credit cheaper and encourage businesses to invest in growth-generating projects. This potential policy shift is anticipated to keep the BoE's easing cycle more moderate compared to other major central banks.
In early European trading hours, BoE Deputy Governor Dave Ramsden, speaking at Stellenbosch University in South Africa, remarked that wage growth was stronger than expected. Average Earnings Excluding bonuses for the three months ending December accelerated to 5.9%, marking the highest level since April 2024. This wage growth could impact the BoE's policy considerations moving forward.
Support for the Pound against the US Dollar remains near the 20-day Exponential Moving Average (EMA) of 1.2560. Meanwhile, the EUR/USD pair is treading water near 1.0400 in European trading on Friday, reflecting broader market uncertainties.
The US Dollar Index (DXY), which tracks the value of the Greenback against six major currencies, rose to 107.45. This uptick underscores the Dollar's strength amidst ongoing trade tensions and market apprehensions regarding Trump's fresh tariff threats. Such measures are viewed by investors as a significant escalation in global trade conflicts, potentially leading to a worldwide economic slowdown.
The Pound Sterling, being the oldest currency in the world and the official currency of the United Kingdom, has demonstrated resilience in such turbulent times. However, its value remains susceptible to shifts in monetary policy and geopolitical developments. As investors digest these factors, the currency ticked higher broadly against its major peers on Friday.