Pound sterling price rebounds toward $1.28 as Fed dovish shift tempers Trump tariff fears
GBP/USD rebounds from 1.2708 on dovish Fed expectations
The British pound rebounded to trade below $1.28 in Tuesday’s European session after slipping to a one-month low of 1.2708 on Monday. The recovery in GBP/USD reflects broad U.S. dollar weakness, driven by growing market expectations that the Federal Reserve could resume rate cuts as early as June.
The U.S. Dollar Index (DXY) dropped to 102.90, reversing its brief recovery from late last week.Markets are now pricing in nearly full odds of a Fed rate cut in June, as fears mount that President Donald Trump’s aggressive tariff policy could spark a recession. Goldman Sachs raised the probability of a U.S. recession from 35% to 45% in response to escalating trade tensions. Fed officials have voiced concern, with Chicago Fed President Austan Goolsbee stating that the path forward remains uncertain amid the risk of stagflation and trade retaliation from key global partners.
GBP/USD price dynamics (February 2025 - April 2025) Source: TradingView.
UK risks grow as tariffs threaten domestic competitiveness
The UK economy is facing increasing vulnerability from the U.S.-China trade war, with fears that Chinese goods could flood global markets, undercutting UK firms on price. UK Prime Minister Keir Starmer reiterated the need to protect domestic industries, stating the government is ready to deploy an industrial policy in response.
The escalating trade tensions have also shifted interest rate expectations in the UK. Markets are now pricing in 88 basis points of Bank of England rate cuts by December—up sharply from 43 basis points just two weeks ago. The odds of a rate cut in May have jumped to 90%, reflecting concerns that the UK economy could be drawn into a broader global downturn.
Technical levels to watch
The GBP/USD pair trades below its 20-day EMA of 1.2887, suggesting that near-term trend pressure remains bearish. The 14-day RSI is near 40, a key level that could trigger further downside if breached. On the downside, support lies at 1.26, with resistance near the 1.3000 psychological mark.
In our earlier GBP coverage, we highlighted that the pair’s failure to hold above $1.3 would expose it to a deeper downside. With tariff-related risks now weighing on both US and UK outlooks, the pound’s direction will hinge on inflation data from the U.S. and GDP data from the UK later this week.
