Pound Strengthens Against US Dollar As Trump Imposes Tariffs On Cars
The British pound (GBP) recovered strongly near 1.2925 against the US dollar (USD) during European trading hours on Thursday. The GBP/USD pair bounced back after a slight correction in the last five trading days from a four-month high around 1.3000. The cable bounced back as the US dollar retraced despite US President Donald Trump imposing a 25% tariff on all imports of cars and their components.
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, corrected near 104.30 from a three-week high around 104.70 recorded earlier in the day.
Theoretically, the new tariffs by US President Trump should have dampened investors’ risk appetite, but market participants expect that the higher levies will also have a significant impact on US economic growth. The impact of higher tariffs will be borne by US importers, who will pass it on to consumers. Such a scenario will reduce household purchasing power.
On monetary policy, Minneapolis Federal Reserve Bank (Fed) President Neel Kashkari has directed that the central bank should keep interest rates in the current range of 4.25%-4.50%. “Policy uncertainty makes the Fed’s job difficult,” Kashkari said at the Detroit Lakes Chamber Economic Summit on Wednesday. Kashkari added that a potential resurgence in inflation due to Trump’s policies would increase the need for higher interest rates, while the consequences for economic growth would support easing monetary policy. Overall, the forces are “sort of complementary,” Kashkari added.
Looking ahead, investors will focus on the US Personal Consumption Expenditures (PCE) Price Index data for February, due on Friday. The impact of the inflation data is expected to be limited on the outlook for interest rates as the fate of the Fed’s monetary policy depends on the outcome of Trump’s economic policies.
Source: FXStreet
