The GBP/USD pair is heading toward the 1.3650 level, amid a weakening US dollar driven by uncertainty surrounding the tariff policy recently announced by President Donald Trump. Trump sent letters to 14 countries outlining the tariff rates that would be imposed on nations that fail to reach a trade agreement with Washington during the 90-day extension period. One of the most notable measures includes a 25% tariff on US imports from Japan, despite active negotiations between the two countries in recent weeks. These tariffs are scheduled to take effect on August 1, although Trump noted that the date is not final.
The uncertainty around US trade policy is expected to keep the dollar under pressure, as investors struggle to price in the potential economic impacts of these measures. Meanwhile, the British pound continues to gain some ground, supported by improved risk sentiment in the markets. However, these gains may be limited due to rising domestic financial risks in the UK.
Recent amendments to the social care bill last week have led to an increase in government spending, depleting the government’s available fiscal surplus. Chancellor Rachel Reeves confirmed that the government will absorb this additional financial burden, while not ruling out potential tax hikes in the future. Tax increases are known to slow growth and are considered contractionary, which could prompt the Bank of England to adopt a more dovish stance and cut interest rates more aggressively by the end of the year or early 2026.
Market confidence is currently growing that the Bank of England will cut interest rates by 25 basis points in its upcoming August meeting. Investors are also awaiting the release of UK GDP data on Friday, which is expected to show a modest growth of 0.1% in May, following a 0.3% contraction in April.
Stay informed about global markets through our previous analyses. and Now, you can also benefit from LDN company services via the LDN Global Markets trading platform.
