GBP/USD catches much-needed bounce from key moving average as tariffs loom
- GBP/USD caught a thin rebound from the 200-day EMA near 1.2700 on Tuesday.
- Markets are coiling ahead of the US’s planned tariff implementation.
- Risk appetite is slowly recovering, but overarching fears remain.
GBP/USD snapped a harsh two-day losing streak on Tuesday, finding a technical bounce from the 200-day Exponential Moving Average (EMA) just north of the 1.2700 handle. Price action remains strung out in no man’s land ahead of the US’s planned tariff implementation, and investors are hunkering down with key US inflation and sentiment figures due later this week.
Forex Today: Markets’ attention shifts to the Fed Minutes
It remains a thin week overall on the UK side of the economic data docket, and Tuesday was a welcome reprieve from the usual deluge of geopolitical and trade headlines that have become the norm from the Trump administration in recent weeks. Still, several key policymakers from the Federal Reserve (Fed) took the opportunity to come out of the woodwork, cautioning that uncertainty and unwelcome inflationary impacts from US tariffs will make it harder, not easier, for the Fed to begin cutting rates.
Utterly undeterred, rate traders continue to pile into bets that the Fed will be squeezed into a rate-cutting cycle through the remainder of the year, as negative economic impacts from those exact same tariffs may push the US into a recession. According to the CME’s FedWatch Tool, rate swap traders are beginning to price in hopeful bets that a first quarter-point cut may come as early as May. However, the majority of the rate market still sees a 25 bps in July as more likely, with a total of 100 bps or more on the cards by the end of the year.
Fed's Goolsbee: Tariffs are way bigger than anticipated
Fed's Daly: I'm a little concerned inflation may pick back up
US Consumer Price Index (CPI) inflation figures are slated for Thursday, with US Producer Price Index (PPI) inflation and University of Michigan (UoM) Consumer Sentiment Index survey results are both set to publish on Friday. This will be the last blast of key US inflation and sentiment figures from the ‘pre-tariff’ phase of 2025, marking a key measurement metric for the remainder of the calendar year.
GBP/USD price forecast
GBP/USD caught a bullish break on Tuesday, finding a thin bounce from the 200-day EMA just above 1.2700. Bullish momentum remains borderline anemic, but bidding pressure was just enough to clip a two-day losing streak that saw Cable shed over 3% top-to-bottom.
Bidders will still need to extend from the 200-day EMA before confirming a bullish recovery, but short momentum appears to have evaporated too quickly to allow fresh selling positions.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
