Pound Weakens Against USD As Trump Agenda Threatens Global Economic Growth
The pound (GBP) weakened against the US dollar (USD) in the North American session on Friday (1/31) but held on to the key support level of 1.2400. The GBP/USD pair remained calm as the safe-haven demand for the US dollar strengthened after US President Donald Trump reiterated his intention to impose 25% tariffs on Canada and Mexico starting Saturday and 100% on BRICS if they try to replace the US dollar with a new currency in international trade.
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, hit a fresh weekly high of 108.36.
On his social media platform TruthSocial, Trump said, "We will demand a commitment from these seemingly hostile nations that they will not create a new BRICS currency or support another currency to replace the mighty US dollar, or they will face 100% tariffs." He added that there is no chance that “BRICS will replace the US dollar in international trade” or anywhere else, and any country that tries should say, “Hello Tariffs, and Goodbye America!”
Market participants believe that higher tariffs from President Trump would be inflationary for the US economy, which could force the Federal Reserve (Fed) to keep interest rates at current levels for longer. On Wednesday, the Fed announced a pause in its easing policy cycle and kept its prime lending rate unchanged in the range of 4.25%-4.50%.
Fed Chairman Jerome Powell said that monetary policy adjustments would be appropriate when central bankers see “real progress on inflation or at least some weakness in the labor market.”
Meanwhile, the US Personal Consumption Expenditures (PCE) Price Index data for December showed that price pressures were picking up as expected. Core PCE inflation, the Fed’s preferred inflation gauge, rose at a faster pace of 0.2% month-on-month, as expected, from 0.1% in November. On a yearly basis, the headline inflation data rose in line with estimates and the previous release to 2.8%.
Source: FXStreet
