GBP/USD price slides below 1.23 as Trump tariffs fuel market uncertainty
British pound weakens as USD gains momentum following Trump’s tariffs
The British pound (GBP) extended its losing streak, dropping below 1.23 amid renewed US trade tensions and a strengthening US dollar (USD). The latest tariff announcement from President Donald Trump has sent shockwaves through global markets, pushing the USD higher, while expectations of a Bank of England (BoE) rate cut have added further downward pressure on the pound.
With GBP/USD down nearly 1% on the day, market participants expect further downside if risk aversion remains elevated. Analysts predict GBP/USD could trade around 1.23 by the end of Q1 2025, with further declines toward 1.21 over the next 12 months. The Fed’s monetary policy outlook, combined with Trump’s aggressive trade stance, could continue to pressure the pound in the near term.
GBP/USD price dynamics (January 2025 - February 2025) Source: TradingView.
Trump’s trade war escalates, boosting the U.S. dollar
On Saturday, the U.S. government confirmed 25% tariffs on Canadian and Mexican imports, along with 10% tariffs on Chinese goods, set to take effect on Tuesday. The announcement led to a broad risk-off sentiment, fueling demand for the safe-haven USD. Additionally, Canadian energy exports will face a 10% tariff, further complicating trade relations.
The U.S. Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred inflation gauge, rose 0.3% month-over-month in December, accelerating from 0.1% in November. The annual PCE inflation climbed to 2.6%, reinforcing expectations that the Fed will maintain its hawkish stance, adding to the Greenback’s strength.
BoE rate cut expectations weigh on the pound
The British pound is also under pressure as traders anticipate a rate cut from the Bank of England on February 8. The BoE is expected to lower rates by 25 basis points (bps) to 4.5%, citing slowing inflation despite rising wage growth.
The UK’s economic outlook remains fragile, with inflation indicators showing a gradual decline, although labor market conditions have yet to stabilize. Investors are closely watching the BoE’s guidance, with markets pricing in three rate cuts by the end of 2025.
In our last analysis, we highlighted the pound’s vulnerability to trade risks and BoE policy shifts. With Trump’s latest tariff actions, GBP/USD has now broken below key support, reinforcing the risk of further declines if trade tensions escalate.
