GBP/USD settles above 3-week low, posts weekly gain

The GBP/USD currency pair settled above Friday’s low of 1.3211, its weakest level since April 17th, in the wake of the Federal Reserve’s and the Bank of England’s policy decisions as well as the announcement of a revised trade agreement between the US and the UK.

The Fed left its federal funds rate target range intact at 4.25%-4.50% for a third straight meeting in May, in line with market consensus.

The US central bank has adopted a wait-and-see approach amid concerns that the tariffs could push inflation higher and slow GDP growth.

At the press conference after the FOMC meeting, Fed Chair Jerome Powell noted it was too early to determine whether inflation or unemployment would emerge as the bigger concern and the central bank did not have to rush into adjusting interest rates.

Meanwhile, the Bank of England lowered its benchmark interest rate by 25 basis points to 4.25% at its May policy meeting, in line with market expectations.

Two MPC members voted in favor of a larger, 50 bps rate cut, while two other members opted to hold rates at 4.5%.

According to Governor Andrew Bailey, the Committee had room to reduce interest rates due to the ongoing moderation of inflationary pressures. He explained that the preceding weeks had illustrated the global economy’s unpredictable nature, which is why a “gradual and careful approach” was necessary when it came to rate cuts. “Ensuring low and stable inflation is our top priority,” he concluded.

Despite that underlying growth remained at a mere 0.1% on quarter, the BoE raised its full-year growth forecast from 0.75% to 1%, attributing the estimate to a better-than-anticipated Q1.

And, inflation is projected to accelerate to as high as 3.5% in Q3 before easing.

On the tariff front, under the terms of the US-UK trade deal, the 10% tariff on UK imports will remain in place, while the UK will lower its tariffs to 1.8% from 5.1%. And, US levies on steel and aluminum sourced from the UK will be lowered to zero.

The GBP/USD currency pair settled 0.48% higher at 1.3305 on Friday.

The major Forex pair gained 0.28% for the week.