The pound (GBP) strengthened near 1.2500 against the US dollar in the European session on Wednesday (5/2). The GBP/USD pair strengthened as the US dollar gave up its initial weekly gains due to the loss of risk premium after US President Donald Trump suspended tariffs on Canada and Mexico.

Market participants have interpreted this scenario as a negotiating tactic by President Trump to close a better deal with its major trading partners. Trump called for an immediate suspension of the 25% tariff order on his North American counterparts after they agreed to cooperate on criminal law enforcement.

However, investors are hesitant to invest heavily in risky assets as the trade war between the two major powers, the US and China, is ongoing. On Tuesday, China responded swiftly to Trump's 10% tariffs by imposing levies on a range of US exports, including farm equipment, some cars, and energy goods such as Coal and Liquefied Natural Gas (LNG). On the economic front, the US Dollar will be guided by the US ADP Employment Change for the private sector and the ISM Services Purchasing Managers' Index (PMI) data for January, due to be released during North American trading hours.

Economists expect the private sector to have hired 150,000 new workers, up from 122,000 in December. Meanwhile, the Services PMI, which measures activity in the services sector that accounts for two-thirds of the US economy, is expected to have risen to 54.3 from the previous reading of 54.1. (Newsmaker)

Source: Fxstreet