The GBP/USD pair reverses its three-day rally, trading near 1.2440 during Tuesday’s Asian session. The British Pound (GBP) faces mounting pressure as markets anticipate a likely rate cut by the Bank of England (BoE) to 4.5% at its next meeting.
Key Drivers Behind GBP Weakness
- Weaker UK Economic Data:
Recent economic indicators from the United Kingdom, including declining inflation, sluggish retail sales, soft labor market performance, and weak GDP growth for December, have solidified expectations for a 25-basis-point rate cut by the BoE in February. This dovish outlook has weighed heavily on the Pound. - US Dollar Strength:
The US Dollar Index (DXY) hovers near 108.00, supported by President Donald Trump’s announcement of new tariff plans. Trump proposed tariffs on critical imports such as computer chips, pharmaceuticals, steel, aluminum, and copper, aiming to bolster domestic manufacturing. - Trump’s Aggressive Trade Policies:
Treasury Secretary Scott Bessent suggested starting with a phased 2.5% universal tariff on US imports, but Trump has expressed a preference for significantly higher rates. These proposals have fueled inflation concerns and boosted US Treasury yields, providing further support for the Greenback. - Fed Policy Uncertainty:
Amid the backdrop of Trump’s trade and immigration policies, the Federal Reserve is treading cautiously. Markets are now closely watching Wednesday’s FOMC decision, which could further influence USD momentum.
Market Outlook for GBP/USD
- Downside Risks:
The pair could face further selling pressure if upcoming UK economic data or BoE commentary reinforces the likelihood of rate cuts. Additionally, stronger US economic data, including Durable Goods Orders, the Consumer Confidence Index, and the Richmond Fed Manufacturing Index, could drive the US Dollar higher. - Key Support Levels:
Immediate support lies near 1.2400, with a break below potentially exposing the 1.2350 region. - Upside Potential:
Resistance is seen near 1.2500, followed by 1.2550. Sustained recovery would depend on a shift in BoE policy expectations or a pullback in USD strength.
Conclusion
The GBP/USD remains vulnerable as dovish expectations surrounding the BoE and Trump’s aggressive tariff policies bolster the US Dollar. Traders should keep an eye on critical economic data and central bank decisions for further cues on the pair’s direction.
