GBP/USD rebounds amid trade tensions and economic data

The British Pound (GBP) kicked off the week with a modest rally against the US Dollar (USD) on Monday, clawing back some of last week’s losses. 

The GBP/USD pair traded near 1.3540 on Tuesday, as investors dialled back their USD holdings amid rising global trade concerns and mixed economic signals.

US dollar weakens as trade tensions flare

The US Dollar took a hit after President Trump announced plans to double tariffs on steel and aluminum imports, reigniting fears of a global trade war.

China’s sharp rebuttal to these trade accusations added to investor caution, dragging the US Dollar Index (DXY) close to last week’s low of 98.80.

This uncertainty created a window for the GBP to rebound, though the GBP/USD pair struggled to hold its early gains as markets turned cautious, limiting buying momentum.

For those tracking these currency shifts, platforms like WR Trading provide real-time tools like a simulator to monitor market sentiment and price movements.

Economic indicators highlight ongoing challenges

Monday’s economic data painted a mixed picture for both economies.

In the US, the ISM Manufacturing PMI slipped to 48.5 in May from 48.7 in April, marking the sharpest contraction since November 2024 and signaling persistent weakness in the manufacturing sector.

Meanwhile, the UK’s S&P Global Manufacturing PMI was revised up to 46.4 in May, better than the preliminary 45.1 and April’s reading.

While still below the 50 mark indicating growth, this improvement suggests UK industry is stabilizing, offering some support for the Pound.

Bank of England policy in focus

Bank of England policymaker Catherine Mann stressed the importance of monitoring the effects of quantitative tightening (QT) as the central bank begins easing interest rates.

In comments reported by Reuters, Mann noted that the Monetary Policy Committee (MPC) needs to assess how its policies affect the yield curve and monetary policy transmission.

This follows the BoE’s recent rate cut, with markets now turning to Governor Andrew Bailey’s testimony at the Monetary Policy Report Hearings on Tuesday for more insight into the bank’s next steps.

Looking ahead: key events to watch

With market sentiment on edge, traders are gearing up for a packed week. In the US, speeches from Federal Reserve officials will be scrutinized for clues about the Fed’s rate path, especially with Friday’s Nonfarm Payrolls (NFP) report looming.

Fed Chair Jerome Powell sidestepped monetary policy in his Monday remarks, leaving investors eager for direction. In the UK, the Services PMI, a key measure of the economy’s largest sector, is due later this week.

Alongside the BoE’s parliamentary hearings, these events could steer GBP/USD in the near term.

The GBP/USD’s bounce reflects a tug-of-war between trade tensions, economic data, and central bank signals.

While the Pound has found some footing, its ability to sustain gains hinges on upcoming data and global risk appetite.

Traders will need to stay alert as these dynamics unfold.