Pound Sterling Declines Amid Global Economic Uncertainty

London, February 22, 2024 – In European trading on Thursday, the Pound Sterling (GBP) fell to approximately 1.2650 against the US Dollar (USD), reflecting cautious market sentiment driven by concerns over the global economic outlook. As investors showed a preference for safe-haven assets amid this uncertainty, pressure mounted on the GBP/USD pair.

Market Sentiment and Trump’s Tariff Agenda

The decline of the Pound comes in the wake of recent comments made by US President Donald Trump, who announced that he would soon reveal details regarding tariffs on the Eurozone. "Details on EU tariffs coming soon," Trump stated, indicating a potential 25% tariff on automobiles and other goods. This announcement raises fears of an escalating trade conflict, particularly as Trump’s previous imposition of 10% tariffs on all imports from China has already raised concerns about a broader global economic slowdown.

In contrast, President Trump extended the deadline for potential tariffs on Canada and Mexico, stipulating that these tariffs would now take effect on April 2, following an extension from a prior deadline of February 4. The postponement was linked to agreements aimed at enhancing border security to mitigate the flow of fentanyl and undocumented immigrants into the US.

US Economic Data Keeping Investors Alert

Domestically, the strength of the US Dollar is becoming increasingly questionable. Recent data indicates a contraction in the S&P Global US Services Purchasing Managers Index (PMI) for the first time in over two years, coupled with significant drops in Consumer Confidence for February. This has led to rising expectations that the Federal Reserve may soon pivot from its current restrictive policy stance. The CME FedWatch tool, for instance, suggests a 68% probability that interest rates may be reduced in the next policy meeting in June.

Looking ahead, investors are keenly awaiting the release of critical economic indicators, such as the US Personal Consumption Expenditures (PCE) Price Index for January and Durable Goods Orders for the month, which will provide further insight into the health of the US economy.

Anticipation Surrounding Trump-Starmer Meeting

In the UK, the Pound’s performance is also influenced by anticipation surrounding a meeting between UK Prime Minister Keir Starmer and President Trump set for Thursday. The discussions are expected to center on trade policies, with the UK being the fifth largest trading partner of the US, per data from the US Bureau of Economic Analysis.

Chancellor of the Exchequer Rachel Reeves expressed confidence that trade and investment between the two nations would remain strong despite the changes in US administration. “The last time President Trump was in the White House, trade and investment flows between our two countries increased, and I’ve got every confidence that that can happen again,” she stated during an interview at the G20 Finance Ministers’ summit.

Technical Analysis of the Pound Sterling

From a technical standpoint, the Pound Sterling is encountering resistance near the 200-day Exponential Moving Average (EMA), trading around 1.2680, while maintaining support above the 38.2% Fibonacci retracement level at 1.2620. The 14-day Relative Strength Index (RSI) remains above 60.00, indicating that bullish momentum persists as long as this level is maintained. Traders will be focusing on possible breakout scenarios, with support at the February 11 low of 1.2333 and key resistance at the 50% and 61.8% Fibonacci retracement levels positioned at 1.2767 and 1.2927, respectively.

Conclusion

As the market grapples with uncertainty on multiple fronts, including potential tariffs and slowing economic indicators, the performance of the Pound Sterling will continue to be a focal point for traders and investors. Attention will be closely directed toward upcoming economic data and the implications of the Trump-Starmer discussions as market participants seek clarity in these turbulent times.