GBP/USD holds steady amid holiday thin trading, UK debt concerns in focus

• The British Pound holds steady near 1.3650 amid thin US holiday trading conditions.
• UK fiscal concerns resurface after the government reverses £5 billion in planned welfare cuts.
• The July 9 US tariff deadline looms, with UK steel and aluminum sectors still at risk.

The British Pound (GBP) is treading water against the US Dollar (USD) on Friday, as the Sterling comes under renewed pressure amid lingering fiscal concerns. A combination of cautious risk sentiment, stronger-than-expected US Nonfarm Payrolls (NFP) data, and political uncertainty in the UK is keeping the Pound on the defensive, with the GBP/USD pair struggling to extend its recent gains.

The GBP/USD pair shows little directional movement, trading around 1.3650 during the American trading hours. With US markets closed for the Independence Day holiday, trading conditions remain thin, limiting volatility and fresh momentum in the pair.

Concerns about the UK's public finances are weighing on the Pound. Chancellor Rachel Reeves is facing pressure after the government reversed planned welfare cuts, which would have saved around £5 billion. This raised doubts about how the government will manage its budget.

Earlier in the week, UK gilt yields spiked sharply, with 10-year yields briefly touching 4.7% the biggest jump since the 2022 mini-budget crisis. Prime Minister Keir Starmer's public backing of Reeves helped steady bond markets, with 10-year yields easing back toward 4.5%, offering temporary support to the British Pound. Still, with public debt near 100% of Gross Domestic Product (GDP) and fiscal headroom shrinking, markets expect further tax hikes in the next Budget as the government scrambles to restore confidence.

According to the Office for National Statistics (ONS), Public sector net debt (PSND) was equivalent to 96.4% of GDP at the end of May 2025.

Trade tensions are also in focus, with investors closely watching the July 9 deadline for the United States to finalize a new round of global tariffs. US President Donald Trump said his administration will likely begin sending tariff letters to trading partners starting Friday, with the new US tariffs on their exports set to take effect from August 1. "They'll range in value from maybe 60 or 70% tariffs to 10 and 20% tariffs," he said.

While the UK has recently secured partial relief through a bilateral trade agreement that lowered duties on car and aerospace exports, key sectors such as steel and aluminium remain exposed. The lingering uncertainty is adding a layer of geopolitical risk to global markets.

Looking ahead, market attention is shifting to Bank of England (BoE) policymaker Alan Taylor, who is scheduled to speak later today at 14:00 GMT. Taylor has previously voiced concern over the UK's economic outlook, warning that the anticipated "soft landing" is increasingly at risk. He has suggested the need for as many as five rate cuts in 2025, one more than markets currently anticipate, citing weakening domestic demand and persistent global trade headwinds. Investors will be closely watching for any fresh signals regarding the BoE's monetary policy outlook.