British pound surges higher, UK GDP next

The British pound has posted sharp gains on Thursday. In the North American session, GBP/USD is trading at 1.2914, up 0.78% on the day.

Markets recover as Trump suspends tariffs

Global equity markets are showing sharp volatility which is also apparent in the currency market. The pound posted sharp losses after the latest round of US tariffs took effect, but has surged higher following US President Trump's surprise announcement that he would reduce all country-specific tariffs to 10% except for China, for 90 days. The dramatic development sent stock markets soaring on Wednesday.

Fed minutes: concern over tariffs

Overshadowed by the wild swings in the financial market, the Fed released the minutes of the March rate meeting on Wednesday. Fed officials are clearly worried about US trade policy as the minutes mentioned tariffs 18 times.

Members viewed risks to inflation to be tilted to the upside and expected inflation to rise this year due to the effect of higher tariffs. Some members warned of "difficult tradeoffs" if inflation remained persistent and growth and employment weakened.

Will the Federal Reserve accelerate its easing cycle due to the tariff turmoil? The markets don't think so, even though there is increasing concern about weaker US growth. If the US goes ahead with its stiff tariff policy, inflation would likely rise in the US, complicating the Fed's plans to gradually reduce rates during the year. The markets have priced in a rate hike in May at just 17%, according to CME FedWatch.

The UK economy is struggling and the GDP report isn't likely to show much improvement. The market estimate is 0.1% m/m for February growth after -0.1% in January. For the three months to February, the market estimate is 0.4%, following 0.2% in the previous release.

GBP/USD Technical

• GBP/USD has pushed above resistance at 1.2878. The next resistance line is 1.2932
• There is support at 1.2811 and 1.2757