British Pound recovers ground amid soft USD, upbeat PMI, and tariff reprieve

• GBP/USD rises modestly on Wednesday, trimming Tuesday's decline.
• The UK was granted temporary relief from 50% US steel and aluminium tariffs.
• The US Dollar holds firm near recent highs ahead of ADP Employment Change data.

The British Pound (GBP) edges higher against the US Dollar (USD) on Wednesday, paring Tuesday's losses as the Greenback softens slightly ahead of key US labor market data. GBP/USD is seeing modest gains after the US Dollar rallied over 0.50% in the previous day, supported by stronger-than-expected JOLTS Job Openings figures that boosted confidence in the labor market.

At the time of writing, the pair is trading around 1.3522 during the European session, but remains stuck within a familiar range between 1.3450 and 1.3600. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, is holding steady near Tuesday's high, hovering around 99.20. Traders are awaiting the ADP Employment Change report, due later on Wednesday, for fresh direction.

The British Pound found some underlying support from upbeat UK Purchasing Managers Index (PMI) data released earlier in the day. The S&P Global Composite PMI rose to 50.3 in May, up from a preliminary 49.4 and April's 48.5, while the Services PMI climbed to 50.9, suggesting a weak but marginal growth.

Adding to the mildly positive tone, the UK has been granted temporary relief from the steep 50% US steel and aluminium tariffs that came into effect this Wednesday. Under an executive order signed by US President Donald Trump on Tuesday, the UK will be treated differently following a preliminary trade agreement reached last month, although the deal has yet to be finalized. For now, levies on UK imports will remain at the previous 25% level, offering near-term relief for British exporters. However, London faces a five-week deadline to formally conclude the deal or risk being hit by the full 50% tariff, keeping trade uncertainty alive.

Attention now turns to the US ADP Employment Change report, which will provide an early indication of private sector hiring ahead of Friday's official Nonfarm Payrolls data. A strong print could reinforce expectations of a resilient US labor market, potentially supporting the US Dollar. Conversely, a downside surprise may renew speculation around a Federal Reserve (Fed) interest rate cut in the coming months, weighing on the Greenback and boosting demand for risk-sensitive currencies like the British Pound.