GBP/USD holds losses near 1.2650 as risk aversion intensifies,US Treasury yields climb
GBP/USD depreciates after two consecutive sessions of gains, trading around 1.2660 during Asian hours on Thursday. The pair loses ground as the US Dollar (USD) strengthens amid increased risk aversion and rising US Treasury yields.
Federal Reserve Bank of Atlanta President Raphael Bostic stated late Wednesday that the Fed should maintain current interest rates to continue applying downward pressure on inflation, according to Bloomberg. Bostic noted the need for more data to determine if January’s inflation was a temporary bump or the start of a trend. He emphasized that Fed policy remains restrictive and should stay that way.
The US Dollar Index (DXY), which measures the USD against six major currencies, advanced near 106.50, with 2-year and 10-year US Treasury bond yields standing at 4.08% and 4.27%, respectively, at the time of writing.
US Commerce Secretary Howard Lutnick announced late Wednesday that April 3 would serve as the baseline for reciprocal tariff data. He also stated that Chinese vehicles would not be allowed in the US, citing China as a major concern. Separately, US Treasury Secretary Scott Bessent reaffirmed his commitment to working with Congress to make President Trump’s tax cuts permanent.
Bank of England (BoE) Monetary Policy Committee Member Swati Dhingra commented on Wednesday that higher US tariffs could strengthen the US Dollar in the short term, leading to some price-increasing effects in the United Kingdom (UK). However, she noted that the overall inflationary impact in the UK would likely be offset by reduced global price pressures resulting from these tariffs.
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Source: Fxstreet
