GBP/USD falls below 1.2300 as Trump’s tariffs spark risk aversion
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The Pound Sterling continues its sharp decline against the US Dollar, breaking below 1.2300, as markets react to President Trump’s aggressive trade tariffs on Canada, Mexico, and China. The escalation of trade tensions has fueled safe-haven demand for the USD, with the US Dollar Index (DXY) surging above 109.50, marking its highest level in over two weeks.
Trade War Fallout and Market Reactions The weekend announcement of 25% tariffs on Canada and Mexico and 10% duties on Chinese imports has rattled global markets. Trump’s decision, linked to border security concerns and fentanyl trafficking, has heightened economic uncertainty, prompting a flight to the US Dollar and risk-off sentiment across asset classes.
Investors now turn their focus to US labor market data, which could shape expectations for future Federal Reserve policy. The Fed held rates steady at 4.25%-4.50% last week, with Chair Jerome Powell reaffirming that rate cuts will depend on inflation progress and labor market conditions.
BoE Policy Decision Looms
The Bank of England is widely expected to cut interest rates by 25 basis points to 4.50% in its Thursday policy meeting. Market expectations suggest that seven out of nine MPC members will vote for a reduction, with hawkish policymaker Catherine Mann likely to be among the dissenters favoring stable rates.
With UK inflationary pressures easing, evidenced by the core CPI slowing to 3.2% in December, and labor market concerns growing, expectations for further BoE easing in 2025 remain strong. The UK added 35,000 jobs in the three months ending November, reflecting a slower hiring pace following the government’s decision to increase National Insurance contributions for employers.
Technical Outlook: Bearish Momentum Strengthens
GBP/USD faces strong downside pressure, trading near 1.2250, after failing to sustain gains above the 50-day Exponential Moving Average (EMA) at 1.2500. The 20-day EMA at 1.2388 now acts as immediate resistance, reinforcing the short-term bearish outlook.
The Relative Strength Index (RSI) has fallen toward 40, with a further decline below this threshold signaling increased bearish momentum. Key support levels lie at 1.2100 (January 13 low) and 1.2050 (October 2023 low), while upside resistance is seen at 1.2607 (December 30 high).
Market Outlook: GBP/USD Faces Continued Pressure
With trade war concerns, BoE policy easing, and strong USD demand, GBP/USD remains vulnerable to further downside risks. The US ISM Manufacturing PMI and upcoming labor market data will be crucial in determining whether the Dollar’s strength persists. Unless risk sentiment stabilizes, the Pound may struggle to reclaim higher levels in the near term.
Trade War Fallout and Market Reactions The weekend announcement of 25% tariffs on Canada and Mexico and 10% duties on Chinese imports has rattled global markets. Trump’s decision, linked to border security concerns and fentanyl trafficking, has heightened economic uncertainty, prompting a flight to the US Dollar and risk-off sentiment across asset classes.
Investors now turn their focus to US labor market data, which could shape expectations for future Federal Reserve policy. The Fed held rates steady at 4.25%-4.50% last week, with Chair Jerome Powell reaffirming that rate cuts will depend on inflation progress and labor market conditions.
BoE Policy Decision Looms
The Bank of England is widely expected to cut interest rates by 25 basis points to 4.50% in its Thursday policy meeting. Market expectations suggest that seven out of nine MPC members will vote for a reduction, with hawkish policymaker Catherine Mann likely to be among the dissenters favoring stable rates.
With UK inflationary pressures easing, evidenced by the core CPI slowing to 3.2% in December, and labor market concerns growing, expectations for further BoE easing in 2025 remain strong. The UK added 35,000 jobs in the three months ending November, reflecting a slower hiring pace following the government’s decision to increase National Insurance contributions for employers.
Technical Outlook: Bearish Momentum Strengthens
GBP/USD faces strong downside pressure, trading near 1.2250, after failing to sustain gains above the 50-day Exponential Moving Average (EMA) at 1.2500. The 20-day EMA at 1.2388 now acts as immediate resistance, reinforcing the short-term bearish outlook.
The Relative Strength Index (RSI) has fallen toward 40, with a further decline below this threshold signaling increased bearish momentum. Key support levels lie at 1.2100 (January 13 low) and 1.2050 (October 2023 low), while upside resistance is seen at 1.2607 (December 30 high).
Market Outlook: GBP/USD Faces Continued Pressure
With trade war concerns, BoE policy easing, and strong USD demand, GBP/USD remains vulnerable to further downside risks. The US ISM Manufacturing PMI and upcoming labor market data will be crucial in determining whether the Dollar’s strength persists. Unless risk sentiment stabilizes, the Pound may struggle to reclaim higher levels in the near term.