The British Pound (GBP) depreciated against the US Dollar (USD) on Monday, driven by escalating trade tensions and anticipation of a Bank of England (BoE) rate cut. US President Donald Trump's announcement of tariffs on Canada, Mexico, and China fueled the downward pressure on GBP/USD.
The GBP/USD exchange rate declined by approximately 1% on Monday amid escalating trade tensions . US President Donald Trump's announcement of tariffs on Canadian and Mexican goods, coupled with a 10% tariff on Chinese imports, fueled the downward pressure on the British Pound . The US plans to implement these tariffs, effective Tuesday, until the fentanyl overdose crisis is resolved. In response, Canada, Mexico, and China have pledged retaliatory measures against these trade restrictions.
Adding to the Pound's woes, traders anticipate a 25 basis point rate cut by the Bank of England (BoE) in February, further weakening the currency. The BoE is expected to adopt a dovish stance at its monetary policy decision next Thursday, given recent signs of slowing inflation, despite continued wage growth acceleration. The US Dollar Index (DXY) strengthened following Trump's tariff announcements, further contributing to the GBP/USD decline. The DXY, which measures the US Dollar against six major currencies, gained strength as investors sought safe haven assets amidst the escalating trade tensions. The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation gauge, rose 0.3% month-over-month in December, exceeding November's 0.1% figure. The PCE inflation rate accelerated to 2.6% year-over-year from 2.4%, while core PCE, excluding food and energy prices, remained steady at 2.8% year-over-year for the third consecutive month. The ongoing trade tensions and the prospect of a BoE rate cut continue to weigh on the British Pound, prompting traders to seek alternative investment opportunities.
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