GBP/USD Weekly Forecast: A near-term move to 1.3000 should not be ruled out

The British pound (GBP) maintained its constructive bias well in place this week, motivating GBP/USD to extend its recovery north of 1.2900 the figure, an area last visited in early November.

The strong move higher in Cable came almost exclusively on the back of the firm and persistent selling impulse in the US Dollar (USD), which remained at the mercy of the White House’s alternating mood regarding the implementation of tariffs.

Also underpinning the solid tone around the sterling, 10-year gilt yields rose to multi-week lows near the 4.80% level, running out of some steam afterwards.

European optimism helps GBP

Extra support for the British pound also came in the form of a generalised improvement in the sentiment on the old continent, which was particularly exacerbated following the pathetic meeting between President Trump and Ukraine’s Volodymyr Zelenskyy at the White Hose.

Indeed, European leaders have united in support of Ukraine, aiming to secure a peace agreement, and have committed to significantly boosting defence spending amid shifting United States (US) priorities under President Donald Trump.

Furthermore, around $1 trillion in new investments—fueled by Germany’s landmark shift in fiscal policy to free up spending on defence and infrastructure, along with increased joint borrowing by the European Union—has dramatically revitalized investor confidence in the region.

Tariff concerns cloud the outlook

In light of the incipient trade war, Megan Greene, a member of the Bank of England’s (BoE) Monetary Policy Committee (MPC), noted that there was uncertainty about the extent to which the United States would implement tariffs and how other countries would respond.

She explained that tariffs could affect the United Kingdom (UK) economy in various ways. Greene stated that if tariffs were imposed on UK goods destined for the US, they would “put downward pressure” on the economy by making it harder for firms to sell to American consumers, although such tariffs might also help lower inflation.

She warned that if supply chains fragmented and had to be reorganized, it would likely hinder UK growth and push inflation higher. Ultimately, Greene asserted that tariffs would depress growth and emphasized the “tonne of uncertainty” surrounding President Trump’s tariff policy, suggesting that the negative impacts on UK economic activity would probably outweigh any potential benefits.

Professor Alan Taylor, also a committee member, concurred by indicating that the risks posed by the tariffs outweighed the upsides—a sentiment he said applied not only to the UK but to countries around the world.

It is worth noting that the United States is the UK’s largest export partner, accounting for more than 15% of all goods exports.

A more prudent Bank of England

Following the February rate cut, BoE policymakers remained cautious regarding the potential next steps by the “Old Lady”.

At this week’s Treasury Select Hearing on the February Monetary Policy Report, Governor Andrew Bailey said that Britain's weakening economy had reduced the likelihood that an anticipated rise in headline inflation this year would result in persistent price pressures.

MPC member Megan Greene stated that the disinflationary trend was probably on track, adding that tariffs would likely weigh on overall growth, though their impact on UK inflation remained unclear.

Finally, Chief Economist Huw Pill remarked that current evidence suggested caution regarding rapid cuts in the Bank Rate, but he acknowledged that further disinflation could enable additional rate reductions later in the year. He also noted that the size and pace of rate cuts would depend on how inflation risks evolved.

Finally, BoE policymaker Catherine Mann said on Thursday that although a near-term increase in inflation was unlikely to cause lasting price issues, she still believed monetary policy should remain restrictive.

On another front, the latest Decision Maker Panel (DMP) revealed that companies anticipate minimal employment growth—just 0.1%—over the coming 12 months. At the same time, businesses now foresee consumer prices rising slightly faster, with inflation expectations nudging up to 3.1% in the three months to February. Firms also indicated they'll hike their own prices by 4.0%, marking a slight acceleration from previous estimates.

All in all, the swaps market anticipates a total of 50 basis points in rate cuts over the coming year.

GBP/USD: Technical view

Pablo Piovano, Senior Analyst at FX Street, notes: “GBP/USD is gearing up for another push higher, with  2025 high of 1.2944 (March 7) squarely in its sights. A decisive break above this level could pave the way for a run at the psychologically significant 1.3000 mark, followed by a test of the November 2024 peak at 1.3047.”

Piovano adds: “On the downside, the 200-day SMA at 1.2787 should offer decent contention ahead of the provisional 100-day SMA at 1.2624. Down from here lies the weekly low of 1.2558 (February 28) and the interim 55-day SMA at 1.2491. Deeper pullbacks would put the February low of 1.2248 (February 3), the 2025 bottom at 1.2099 (January 13), and the weekly low of 1.2069 (October 26) into focus.”

“Meanwhile, the daily RSI remains in overbought territory beyond 71, hinting that the pair may be due for a corrective breather before any sustained move higher. The Average Directional Index (ADX) picked up pace and approached 23, showing some strengthening of the current trend”, Piovano concludes.