GBP/USD price holds above $1.24 as traders await Trump China tariff implementation
GBP/USD holds above $1.24 as traders monitor U.S.-China trade war developments
The GBP/USD pair continues its upward momentum, trading around 1.2430 in the Asian session on Tuesday, driven by improved risk sentiment after U.S. President Donald Trump paused tariffs on Mexico and Canada. However, traders remain cautious as the U.S. prepares to impose a 10% tariff on Chinese imports, set to take effect at 05:00 GMT on Tuesday.
With the U.S.-China tariff deadline approaching, GBP/USD remains vulnerable to fluctuations in risk sentiment. If China retaliates aggressively, the U.S. dollar could strengthen, weighing on the pound. On the other hand, any positive trade developments could support further upside for GBP/USD.
GBP/USD price dynamics (Dec 2024 - Feb 2025) Source: TradingView.
Trump delays Canada-Mexico tariffs but maintains pressure on China
The U.S. dollar weakened slightly after Trump suspended his planned tariffs on Canadian and Mexican imports for 30 days, following agreements from both governments to deploy 10,000 troops to the U.S. border to curb drug trafficking. This decision provided temporary relief to risk-sensitive currencies, including the British pound.
Despite this, markets remain volatile as Trump’s tariffs on China remain on track. Speaking on Monday, the U.S. president stated that negotiations with China could take place within the next 24 hours, but he warned that if a deal is not reached, tariffs would become “very, very substantial”.
The U.S. dollar Index (DXY) stabilized at 108.70, following strong U.S. ISM Manufacturing PMI data, which rose to 50.9 in January, exceeding forecasts of 49.8. The data signaled continued economic resilience, which could limit the dollar’s downside in the near term.
BoE rate cut expectations cap GBP/USD upside
While GBP/USD remains above $1.24, the pair’s upside potential could be limited as investors price in a 25 basis point rate cut from the Bank of England (BoE) at Thursday’s policy meeting. Analysts expect the BoE’s Monetary Policy Committee (MPC) to vote 8-1 in favor of cutting rates to 4.5%, with one member likely advocating to maintain current rates.
The UK economy has shown signs of slowing inflation, adding pressure on policymakers to support growth. However, wage growth remains strong, which could complicate the BoE’s decision-making process. Markets will closely monitor the central bank’s guidance on future rate moves, as a dovish stance could put further pressure on the pound.
Looking ahead, BoE’s policy meeting on Thursday will be a key driver for the pair. If the central bank signals additional rate cuts, the British pound could decline toward 1.2350, while hawkish rhetoric could support a move above 1.25.
Previously discussed levels near 1.24 remain critical, with the pound reacting to both tariff developments and the BoE’s rate outlook in the coming sessions.
