Pound Sterling trades with caution as Trump unveils fresh tariff threats

• The Pound Sterling broadly steadies against the US Dollar at around 1.3600 as Trump vows to push forward with new tariffs.
• Trump prepares to announce new tariff rates for over seven nations and indicated his intention to impose levies on copper and pharma products.
• Rising UK gilt yields pose long-term fiscal risks for the economy.

The Pound Sterling (GBP) trades cautiously around 1.3600 against the US Dollar during European trading hours on Wednesday, with the GBP/USD pair broadly stable after United States (US) President Donald Trump threatened a series of new tariffs on Tuesday.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades at 97.50, broadly stable on the day and not far from the weekly high of around 97.80

On Tuesday, US President Trump stated in a cabinet meeting that he will impose 50% tariffs on copper imports, aiming to boost domestic production. However, he didn't provide a time frame. This marks the fourth specific product catergory targeted by Trump's tariffs following automobiles and auto parts, steel, and aluminum.

Apart from higher import duties on copper, US President Trump also threatened to impose an additional 10% tariffs on BRICS nations for attempting de-dollarization practices, and a 200% tax on pharmaceutical imports next year.

Daily digest market movers: Pound Sterling steadies as higher UK gilt yields increase long-term risks

• The Pound Sterling trades calmly against its major peers on Wednesday. The British currency regains composure after a sharp decline last week, following a relentless sell-off in United Kingdom (UK) gilt securities after Chancellor of the Exchequer Rachel Reeves broke her self-imposed fiscal rules to support a major reform in the welfare spending bill.
• UK gilt yields rallied last week after Chancellor Reeves announced an increase in standard allowance for Universal Credit (UC) before the House of Commons without outlining the source of funds to support this additional spending. An increase in the welfare bill is expected to increase the financial burden on the government's books by £4.8 billion by fiscal year 2029-2030.
• Higher gilt yields means increased interest obligations for the administration. According to the Office for Business Responsibility (OBR), the UK has the third-highest borrowing costs of any developed economy, with 10-year gilt yields at around 4.63%.
• In terms of economic data, investors will focus on the monthly Gross Domestic Product (GDP) and factory data for May, which are scheduled to be released on Friday.
• Investors will also focus on the additional letters by US President Trump to be sent to over seven countries. These are expected to outline tariffs rates after not closing a trade deal during the 90-day pause. "We will be releasing a minimum of 7 Countries having to do with trade, tomorrow morning, with an additional number of Countries being released in the afternoon. Thank you for your attention to this matter!" Trump wrote in a post on Truth.Social. Still, the impact of these letters could to be limited as the effective date for imposition of reciprocal tariffs has been extended to August 1.
• During the North American session, investors will pay attention to the release of the Federal Open Market Committee (FOMC) minutes of the July 17-18 policy meeting.

Technical Analysis: Pound Sterling trades quietly below 1.3600

The Pound Sterling trades in a limited range around 1.3600 against the US Dollar on Wednesday. The GBP/USD pair wobbles around the 20-day Exponential Moving Average (EMA) near 1.3590, suggesting that the near-term trend is uncertain.

The 14-day Relative Strength Index (RSI) stays near 50.00, indicating that the bullish momentum has faded.

Looking down, the psychological level of 1.3500 will act as a key support zone. On the upside, the three-and-a-half-year high around 1.3800 will act as a key barrier.