The Pound (GBP) is trading significantly lower near 1.2250 against the US Dollar (USD) during the European session on Monday (3/2). Earlier in the day, the GBP/USD pair gapped down at the open as US President Donald Trump's imposition of tariffs on Canada, Mexico and China sent global financial markets into panic mode, forcing investors to turn to safe-haven assets.

The downbeat market sentiment has led to a sharp rise in the US Dollar (USD), which has been a strong performer in volatile environments. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, strengthened above 109.50, the highest level seen in more than two weeks.

President Trump imposed 25% tariffs on Canada and Mexico and 10% on China over the weekend. Trump has threatened to increase tariffs on his North American partners for allowing illegal immigrants and the deadly opioid fentanyl into the country.

On the economic front, investors will be watching economic indicators related to the labor market this week, which will influence market speculation about how long the Federal Reserve (Fed) will keep interest rates at current levels. Following its policy meeting on Wednesday, where the Fed left interest rates unchanged in a range of 4.25%-4.50%, Chairman Jerome Powell said that adjusting monetary policy would be appropriate only when they see "real progress in inflation or some weakness in the labor market."

In Monday's session, investors will focus on the U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) and the revised S&P Global Manufacturing PMI data for January. The ISM Manufacturing PMI is expected to improve to 49.5, still below the 50.0 threshold that separates expansion from contraction, from 49.3 in December, indicating that factory activity contracted but at a slower pace.

Source: FXstreet