- The Pound Sterling falls on Monday against the US Dollar after Donald Trump threatened BRICS with 100% tariffs, supporting the Greenback.
- Trump said he would impose tariffs if the trading group tried to replace the US Dollar with their own reserve currency.
- Technically, GBP/USD remains in an uptrend, within which it is undergoing a correction.
The Pound Sterling (GBP) pulls back on Monday after more invective from President-elect Donald Trump bolsters the US Dollar (USD).
In a post on social media, Trump railed against the BRICS trading bloc’s plans to replace the US Dollar with their own currency. If the emerging-market trading bloc goes ahead, warned Trump, he would hit them with 100% tariffs.
The GBP/USD pair bounces briefly, however, following the release of UK house price data that showed dwellings’ prices rose more than expected in November, as this provided support to the Pound Sterling.
Pound Sterling pulls back after Trump throws BRICS
The GBP/USD pair is trading lower on Monday after rising quite strongly in the previous week, when it clocked gains of 1.71%.
The pair is falling after Donald Trump threatened to impose 100% tariffs on the BRICS trading bloc of nations, which includes Brazil, Russia, India, China, South Africa, Egypt, Iran, the United Arab Emirates and Ethiopia. Trump said he would impose the tariffs if the group goes ahead with plans to replace the US Dollar as their main medium of exchange.
“The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER,” Trump posted on Truth Social on Saturday afternoon. “We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy,” he added.
Pound Sterling gets bump from UK house prices
GBP/USD recovered some lost ground after the release of Nationwide Housing Prices early on Monday showed a rise of 3.7% YoY in November, beating estimates of 2.4% and the previous month’s 2.4% YoY rise.
On a seasonally-adjusted monthly basis, Nationwide House Prices rose 1.2% – well above the 0.2% expected and 0.1% previous estimate.
UK Money and Lending data out on Friday, meanwhile, showed a fall in Consumer Credit in October. Mortgage Approvals, however, unexpectedly rose.
The overall takeaway, according to economists at advisory service Capital Economics, was that the data suggested “downside risks” to UK economic growth in Q4.
“October’s money and lending figures suggest that Budget worries prompted households to become more cautious with their borrowing and saving,” said Capital in a note. “Today’s data release adds a bit further downside risk to our Q4 GDP growth forecast of +0.4% q/q,” it added.
GBP/USD and outlook for interest rates
In terms of the outlook for interest rates – a major driver of currency valuations – the Pound Sterling and the US Dollar are well-matched.
Both the Bank of England (BoE) and the US Federal Reserve (Fed) are seen as likely to cut interest rates at their December policy meetings as inflation in both countries eases.
The swaps market is pricing a probability of around 60% that the BoE will cut interest rates by 0.25% at their December meeting, according to Brown Brothers Harriman (BBH). The US futures market, meanwhile, is pricing in around a 67% probability of a same-sized cut at their December meeting, according to the CME FedWatch tool.
This could limit volatility for GBP/USD as lower interest rates would be bearish for both currencies since they reduce foreign capital inflows.
Technical Analysis: GBP/USD pulls back within uptrend
GBP/USD remains within a short-term uptrend, which is still intact despite Monday’s losses. Since it is a principle of technical analysis that “the trend is your friend” the odds continue to favor an extension of this trend higher.
GBP/USD 4-hour Chart
A break above 1.2750 would probably activate the next upside target at around 1.2824, where the (green) 200-period Simple Moving Average (SMA) is situated.
A continuation lower, however, could take the pair down to support at 1.2671, the mid-November lows.
The blue Moving Average Convergence Divergence (MACD) indicator has crossed below its red signal line, suggesting more weakness to come.
The medium-term trend is still bearish, indicating a risk to the downside, whilst the longer-term trend – it could be argued – is still probably bullish, further complicating the picture.
BRICS FAQs
The BRICS is the acronym denoting the grouping of Brazil, Russia, India, China and South Africa. The name was created by Goldman Sachs’ economist Jim O’Neill in 2001, years before the alliance between these countries was formally established, to refer to a group of developing economies that were predicted back then to lead the global economy by 2050. The bloc is seen as a counterweight to the G7, the group of developed economies formed by Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
The BRICS is a bloc which intends to give voice to the so-called “Global South”. The alliance tends to have similar views on geopolitical and diplomatic issues, but still lacks a clear economic integration as the governing systems and cultural divergence between its members is significant. Still, it holds yearly summits at the highest level, coordinates multilateral policies and has implemented initiatives such as the creation of a joint development bank. Egypt, Ethiopia, Iran and the United Arab Emirates joined the group in January 2024.
The five founding members of the BRICS alliance account for 32% of the global economy measured at purchasing power parity as of April 2023, according to data from the International Monetary Fund. This compares with the 30% of the G7 group.
There has been increasing speculation about the BRICS alliance creating a currency backed by some sort of commodity like Gold. The proposal is meant to reduce the use of the dominant US Dollar in cross-border economic exchanges. In the BRICS’ 2023 summit, the group stressed the importance of encouraging the use of local currencies in international trade and financial transactions between the members of the bloc as well as their trading partners. The group also tasked finance ministers and central bank governors “to consider the issue of local currencies, payment instruments and platforms” for this purpose. Even if the bloc’s de-dollarization strategy looks clear, the creation and implementation of a new currency seems to have a long way to go.
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