GBP/USD drops below 1.2500 due to dovish BoE, Trump tariff plans

GBP/USD depreciates as the BoE is widely anticipated to deliver a 25 basis point rate cut in February.
The US Dollar rises as President Trump plans to impose tariffs on imports of multiple products.
Trump stated that he wants “bigger tariffs” than “2.5% universal tariffs on US imports,” proposed by Treasury Secretary Scott Bessent.

Akhtar Faruqui FXStreet

The GBP/USD pair halts its three-day winning streak as the British Pound (GBP) faces headwinds due to growing market expectations of a near-certain rate cut by the Bank of England (BoE) to 4.5% at its upcoming meeting. During Tuesday's Asian session, the pair trades around 1.2440.

Soft economic data from the United Kingdom (UK)—including weaker inflation, retail sales, labor market figures, and sluggish GDP growth in December—has strengthened the case for a 25 basis point rate cut by the BoE in February.

Meanwhile, the US Dollar Index (DXY), which measures the US Dollar (USD) against a basket of six major currencies, hovers near 108.00. Market participants are likely to monitor key US economic releases later in the day, including Durable Goods Orders, the Conference Board’s Consumer Confidence Index, and the Richmond Fed Manufacturing Index.

The US Dollar has gained traction following President Donald Trump’s tariff announcements on Monday evening. Trump proposed tariffs on imports of computer chips, pharmaceuticals, steel, aluminum, and copper to encourage domestic manufacturing.

Treasury Secretary Scott Bessent also proposed introducing universal tariffs on US imports, starting at 2.5%. However, Trump stated he favors “much bigger” tariffs than the initial proposal.

Uncertainty surrounding the economic implications of Trump’s trade and immigration policies has prompted the Federal Reserve (Fed) to adopt a cautious approach ahead of its policy decision on Wednesday, which could lend additional support to the Greenback.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD bulls seem hesitant below 0.7050 ahead of RBA on Tuesday

AUD/USD reverses an Asian session dip on Monday as renewed optimism over Iran diplomacy boosts investor confidence, keeping a lid on the safe-haven US Dollar and supporting the risk-sensitive Aussie. Spot prices, however, remain below the one-month high, touched last Thursday, as bulls wait for the crucial RBA decision before taking fresh positions.

USD/JPY climbs to 158.00 neighborhood as BoJ uncertainty weighs on the JPY

The USD/JPY pair gains some positive traction at the start of a new week, recovering further from Friday's post-Bank of Japan (BoJ) swing low to sub-157.00 levels. The momentum lifts spot prices to the 158.00 neighborhood during the Asian session and seems unaffected by fresh intervention warning from Japan's Finance Minister Satsuki Katayama.

Gold recovers on positive US-Iran headlines

Gold extends its recovery during American trading hours on Monday, supported by falling Oil prices following positive headlines on US-Iran talks. The metal regains ground after hitting a fresh yearly low of $3,870 on Friday and ending October down 6.87%. However, the rebound lacks conviction as the fundamental backdrop continues to raise doubts over a sustained recovery.

Bitcoin braces for US midterm elections as historical sell-offs revive downside concerns

Bitcoin (BTC) braces for the impact of the US midterm elections, just a week after the $6 billion hack from Binance. Historically, congressional elections have negatively affected not just the president’s party but also Bitcoin. In the last 22 midterms, the ruling party has gained House seats only twice, while the three most recent elections coincided with Bitcoin’s bear market bottoms.

Why strong US growth could not stop the bond rally and AI selloff

The US economy grew at a 3.4% annual rate, yet Treasury yields fell and the Nasdaq ended October with its worst monthly performance since March 2025. The market is no longer rewarding capital expenditure simply because it supports growth. Investors are testing whether that expenditure can produce cash flow and returns above the cost of capital.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.