The Pound Sterling (GBP) fell sharply against the US Dollar (USD) at the start of the week, with the GBP/USD pair dropping near the 1.3400 mark during early Monday trading. The decline comes as the US Dollar gains broad-based strength following the announcement of a trade framework agreement between the United States and the European Union (EU).
The US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, climbed to around 97.90 at the time of writing, reflecting increased demand for the USD.
Over the weekend, US President Donald Trump confirmed a new trade pact with the EU, under which tariffs on European imports will be set at 15%—half the rate previously threatened. The announcement eased fears of trade disruptions and supported the Dollar’s advance, as the deal removed a key uncertainty ahead of the August 1 tariff deadline.
While the agreement lifted market sentiment and boosted demand for riskier assets, risk-sensitive currencies like the Pound have struggled to benefit, as the US Dollar remains firmly bid amid improving trade relations and a stronger economic outlook.
The confirmation of the US-EU trade deal also signals that the US is actively securing agreements with key partners—excluding Canada and Mexico—which has further underpinned the Greenback. Meanwhile, markets now await the outcome of US-China trade talks beginning Monday in Stockholm, where both sides are expected to extend their tariff truce by another 90 days, potentially until August 12, according to the South China Morning Post (SCMP).
Market Drivers: Key Takeaways
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Pound’s Mixed Performance: During the European session, the Pound showed a mixed performance against its major peers. With a quiet UK economic calendar this week, investor attention has turned to speculation over the Bank of England’s (BoE) monetary policy decision due on August 7.
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Rate Cut Expectations: Market participants have fully priced in a 25 basis points (bps) rate cut from the BoE, driven by signs of a cooling UK labor market. The latest employment data shows weakness attributed in part to an increase in employer National Insurance (NI) contributions—from 13.8% to 15%—announced by Chancellor Rachel Reeves in the Autumn Statement.
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PMI Data Signals Job Losses: Last week’s preliminary S&P Global PMI report for July indicated that staffing levels in the UK declined at the fastest rate since February, further reinforcing dovish expectations for the BoE.
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Focus Shifts to the Fed: On the global front, the Federal Reserve’s monetary policy meeting on Wednesday will be a key event for GBP/USD traders. The Fed is widely expected to keep rates steady in the 4.25%–4.50% range, according to CME FedWatch data.
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Powell’s Guidance Crucial: Market participants will closely analyze Chair Jerome Powell’s press conference for insights into the Fed’s views on inflation risks related to tariffs and any potential adjustments to policy in the second half of the year.
