Pound Declines Ahead of Fed and BoE Decisions, Trade Deal Expected

The British pound experienced volatility amid speculation that the US and UK are close to announcing a bilateral trade deal, following hints from President Trump and reports suggesting tariff reductions on both sides. While initial optimism over the potential agreement caused the pound to rally, it later retreated as traders shifted focus to the Bank of England's (BoE) upcoming interest rate decision, where a 25 basis point cut is widely anticipated. The US Federal Reserve, meanwhile, maintained its policy rate as expected and emphasized a data-dependent approach, citing ongoing uncertainty from recent US tariff actions. The prospect of a US-UK trade deal is seen as relatively straightforward compared to upcoming negotiations with other major economies and is viewed as a possible catalyst for renewed market direction. Market participants are also closely watching the BoE's forward guidance for signals on future easing, given the recent positive sentiment around UK trade prospects. Overall, currency markets remain cautious and indecisive, with broader dollar weakness and trade policy developments shaping near-term expectations.