GBP/USD price forecast: Pound Sterling rebounds as Ukraine peace talks boost risk sentiment
Pound sterling rebounds near 1.2650 as investors assess trade risks
The Pound sterling (GBP) has strengthened against the U.S. Dollar (USD), climbing toward 1.265 as risk appetite improves on renewed hopes for a Russia-Ukraine peace truce. UK Prime Minister Keir Starmer met with European leaders and Ukrainian President Volodymyr Zelenskyy over the weekend, pushing for a diplomatic resolution to the ongoing war.
Market sentiment improved as investors responded positively to the prospect of a settlement, boosting demand for risk-sensitive assets like the pound.
Additionally, the UK’s revised February Manufacturing PMI rose to 46.9, up from the preliminary reading of 46.4, signaling a modest improvement in business conditions. Despite remaining below the expansionary 50.0 threshold, the data provided some support to GBP. Meanwhile, expectations for a moderate Bank of England (BoE) rate-cutting cycle continue to underpin the currency, with traders fully pricing in two BoE rate cuts in 2025, compared to the European Central Bank's (ECB) projected three rate cuts.
GBP/USD price dynamics (Jan 2025 - Feb 2025) Source: TradingView.
Tariff concerns and U.S. economic data impact GBP/USD
Despite recent gains, traders remain cautious as U.S. President Donald Trump’s tariff threats loom over global markets. Trump has reaffirmed plans to impose 25% tariffs on Canada and Mexico, alongside an additional 10% duty on Chinese imports, set to take effect this month. This move has heightened concerns over trade disruptions and their potential impact on the UK economy.
Meanwhile, the US Dollar Index (DXY) remains steady at 107.25, after hitting a two-week high of 107.65 on Friday. Investors are closely monitoring US ISM Manufacturing PMI data and Nonfarm Payrolls (NFP) for February, set to be released later this week, as these reports will shape expectations for the Federal Reserve’s monetary policy. The CME FedWatch tool currently indicates a 77% probability of a Fed rate cut in June, which could further influence GBP/USD movements.
Technical analysis: Key levels for GBP/USD
The GBP/USD pair has bounced back from the 20-day Exponential Moving Average (EMA) at 1.2560, finding fresh buying interest near 1.2650. The 14-day Relative Strength Index (RSI) remains within the 40-60 neutral range, indicating that bullish momentum is not yet fully established.
On the downside, the February 11 low of 1.2333 serves as key support, while on the upside, the 50% Fibonacci retracement level at 1.2765 is the next major resistance zone. A decisive break above this level could push GBP toward 1.2800 and beyond, while a failure to hold above 1.2600 could trigger another pullback.
As previously discussed, pound sterling rebounds as optimism grows over UK economic resilience and geopolitical stability.
