The British Pound is regaining ground against the US Dollar, setting the stage for a potential test of the 2025 high at 1.2523. Recent volatility driven by trade tensions and central bank expectations has put GBPUSD on a short-term recovery path, but broader market forces remain in play.
GBPUSD experienced sharp fluctuations at the start of the week, briefly sinking to 1.2248 as fears of a tariff standoff between the US, Mexico, and Canada rattled markets. The US Dollar initially surged amid concerns that former President Donald Trump would impose heavy tariffs on trade partners, but a last-minute agreement between the three nations reversed the Dollar’s gains, allowing Sterling to recapture lost ground. With the October-January downtrend line now breached, a continued push higher appears likely.
Support for GBPUSD is currently seen at 1.2413, the 23.6% Fibonacci retracement of the October-January selloff. If this level holds, the pair could challenge 1.2523 in the near term. The UK’s relatively low exposure to US goods trade has helped Sterling hold its footing despite ongoing tariff discussions. Analysts suggest that, compared to other economies, the UK has little to lose from potential US tariffs, making GBP somewhat resilient in these scenarios.
However, the US Dollar remains the dominant driver of GBPUSD price action, influencing roughly 80% of its movements. While Trump has yet to target the UK with tariffs, European nations are likely to be next in his sights, which could limit Sterling’s upside potential. A sustained recovery above 1.26 may prove difficult under these conditions.
Investors are also closely watching the Bank of England’s upcoming decision, which is expected to introduce further Sterling-specific volatility. Markets anticipate another interest rate cut alongside a dovish commitment to further easing in response to slowing economic growth and rising unemployment. If the central bank signals a total of four rate cuts for 2025—up from the currently expected three—UK bond yields and the Pound could face downward pressure.
That said, the market has already adjusted to the UK’s weaker economic outlook, with Sterling underperforming against all major peers in early 2025. Any additional weakness from the Bank of England’s forecasts is likely priced in, meaning sharp declines in GBPUSD may be short-lived. Investors could use any dip as a buying opportunity, as broader economic conditions continue to evolve.
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