HG MARKETS:

The Pound Sterling (GBP) continued to strengthen against the US Dollar (USD) for the third consecutive session on Friday, climbing toward 1.3470 during the European session. The US Dollar weakened broadly amid escalating trade tensions between the United States and China, coupled with growing market expectations of a more dovish stance from the Federal Reserve (Fed) for the remainder of the year. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s performance against six major currencies, was hovering near a 10-day low around 98.10.

Trade relations between Washington and Beijing have soured further after the US imposed an additional 100% tariff on Chinese imports in retaliation for China’s export restrictions on rare earth minerals. Despite these tensions, the planned meeting between US President Donald Trump and Chinese President Xi Jinping later this month in South Korea remains on schedule. US Treasury Secretary Scott Bessent emphasized that while Washington does not seek to “decouple with China,” it cannot allow Chinese bureaucrats to control global supply chains and manufacturing processes.

Global leaders have voiced strong criticism of China’s restrictive measures on rare earth exports. UK Chancellor of the Exchequer Rachel Reeves called the decision “wrong and dangerous for the world economy,” stressing the need for the Group of Seven (G7) to strengthen supply chains and secure critical minerals from diverse sources. Her comments reflect growing global unease over China’s dominance in rare earth supplies, which are vital for high-tech manufacturing and defense industries.

The Pound Sterling showed a mixed performance against other major currencies on Friday, as investors awaited further signals from the Bank of England (BoE) regarding its policy direction. Dovish expectations increased earlier this week following weak UK labor market data, which revealed that unemployment rose to 4.8% — its highest since early 2021 — while wage growth slowed. Markets now anticipate that the BoE could reduce interest rates by about 46 basis points before the end of the year.

BoE’s Catherine Mann opposed further rate cuts, citing only a modest labor market slowdown. In contrast, markets anticipate at least a 50 bps Fed rate cut, with a 20% chance of a 75 bps reduction by year-end.