GBP/USD falls toward 1.3300 as Trump signals optimism over potential US-China trade deal

• GBP/USD weakens as cautious sentiment prevails ahead of the US ISM Manufacturing PMI release.
• Trump boosts market optimism with remarks on a US-China trade agreement, stating there's a "very good probability" of a deal.
• The Pound Sterling remains under pressure amid growing dovish expectations for the Bank of England's upcoming policy stance.

The GBP/USD pair continues its downward trajectory for the third straight day, trading around 1.3310 during Thursday's Asian session. Market participants appear to be positioning cautiously ahead of the US Institute for Supply Management's (ISM) Manufacturing Purchasing Managers Index (PMI), set to be released later in the North American session.

The US Dollar (USD) is gaining strength, buoyed by comments from US President Donald Trump during a NewsNation Town Hall interview early Thursday. Trump expressed optimism about a possible trade deal with China, stating there is a "very good probability we'll reach a deal." He emphasized that any agreement must align with US interests and also hinted at potential future deals with India, South Korea, and Japan. Additionally, Trump announced that a trade agreement with Ukraine had been finalized earlier in the day.

The US Dollar Index (DXY), which tracks the USD's performance against a basket of six major currencies, is also climbing for the third consecutive day, trading near 99.70 at the time of writing. The Greenback rally comes as traders scale back expectations for a 100 basis point rate cut by the Federal Reserve (Fed) this year, following recent economic data that signaled weakness in the US economy.

US Gross Domestic Product (GDP) contracted by 0.3% annualized in the first quarter of 2025, missing the forecast for 0.4% growth and sharply down from the 2.4% expansion in the previous quarter. Meanwhile, the core Personal Consumption Expenditure (PCE) Price Index--a key inflation gauge--rose 2.6% year-on-year in March, in line with expectations but slower than February's 2.8% increase.

Across the pond, the Pound Sterling (GBP) remains under pressure as market sentiment turns increasingly dovish toward the Bank of England (BoE). Traders are now pricing in a 25 basis point rate cut at the BoE's upcoming policy meeting on May 8. Expectations for easing have intensified amid concerns that the newly announced US tariff policy could reduce global inflationary pressures and dampen economic growth in the United Kingdom (UK).

BoE policymaker Megan Greene, speaking at the Atlantic Council on Friday, said the potential trade conflict would have a "net disinflationary" impact on the UK economy. Greene also highlighted labor market risks, pointing to the recent rise in employers' national insurance contributions from 13.8% to 15%, which took effect this month.