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GBP/USD Edges Lower Toward 1.2300 Amid Resurgent US Dollar and Trade War Fears

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  • January 22, 2025
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GBP/USD has reversed its two-day rally and is heading toward 1.2300 as the US Dollar regains strength on heightened safe-haven demand. The pair’s decline follows renewed concerns over potential trade wars under the Trump administration, with threats of tariffs on China, Mexico, and Canada weighing on market sentiment. Meanwhile, disappointing UK labor market data, including a rise in unemployment and slower employment growth, have added pressure on the British Pound. Despite Monday’s sharp rally fueled by USD weakness during the Martin Luther King Jr. holiday, the pair now struggles to maintain momentum. Technical indicators signal bearish sentiment, with immediate support at 1.2230 and resistance at 1.2300. KEY LOOKOUTS • GBP/USD slips toward 1.2300 as the US Dollar regains momentum on trade war concerns. • UK labor data disappoints with rising unemployment and slower wage growth. • Technical indicators suggest bearish momentum, with key support at 1.2230 and resistance at 1.2300. • US market sentiment and Wall Street performance may further impact the pair’s trajectory. GBP/USD continues moving lower toward 1.2300, due to a rising US Dollar amid growing fears of a full-scale trade war and weak data on the UK labor market. The pair had its latest dip driven by renewed safe-haven demand for the dollar following the new round of Trump’s tariffs threats against China, Mexico, and Canada. Additionally, disappointing UK employment figures, including a rise in the unemployment rate to 4.4% and slowing wage growth, have further dampened the Pound’s resilience. Technical indicators point to bearish momentum, with immediate support at 1.2230 and resistance near 1.2300, as traders closely monitor US market sentiment for further directional cues. GBP/USD is trending lower towards 1.2300 as the USD is gaining strength with fears of the trade war, weak UK labor data, and also due to some bearish technical signals that could see further downsides. • The pair has been trending lower towards 1.2300 after a two-day rally led by a resurgent US Dollar. • Safe-haven demand for the greenback rises amid growing trade war fears and tariff threats by the Trump administration. • Disappointing data shows unemployment edging higher to 4.4%, with wage growth slowing and employment changes sharply declining. • The US considers tariffs on China, Mexico, and Canada, fueling uncertainty and boosting the Dollar. • Bearish momentum is reflected in the Relative Strength Index (RSI) and key support at 1.2230, with resistance near 1.2300. • GBP/USD erased Monday’s 1.3% gain, losing 0.6% by Tuesday, highlighting a volatile trading pattern. • US equity and bond markets, as well as Wall Street, are integral to the analysis of further market moves in GBP/USD. GBP/USD continues downwards, falling into the 1.2300 region as the Greenback gains upward momentum on higher safe-haven money flows. Inflationary anxiety has returned amid growing trade-war fears, thanks to the prospect of tariffs proposed by the White House against Beijing, Mexico City, and Ottowa, the latter two because of their “abuse of our country,” according to President Trump. Disappointing UK labour market data has been weighing on the British Pound lately. The unemployment rate edged up to 4.4%, while wages growth slowed down, and the employment gains reduced sharply, decreasing the Pound’s ability to keep up with the Dollar’s gain. This was enough to take the wind off the sails of GBP/USD’s recent upswing, having rocketed sharply 1.3% higher Monday. GBP/USD Daily Price Chart. Source: TradingView Prepared By ELLYANA Meanwhile, bearish momentum dominates, as reflected in the Relative Strength Index (RSI) slipping toward 50 after reaching 70 earlier this week. Key support levels are identified at 1.2230 and 1.2200, while resistance is seen at 1.2300 and 1.2350. Traders are closely watching US market sentiment, as Wall Street’s performance could further influence the pair’s direction. There is little major economic data to be released from the US in the short term, but geopolitical events and announcements regarding tariffs are going to drive things, and that could either help support the Dollar’s haven appeal or provide some respite for GBP/USD. TECHNICAL ANALYSIS GBP/USD clearly continues to demonstrate bearish momentum as it falls towards the 1.2300 level. On the 4-hour chart, Relative Strength Index (RSI) dropped from overbought territory close to 70 into neutral 50 to lose any positive strength. Significant supports are now marked at 1.2230, with both the 20-period and 50-period SMAs meeting at that point. Another strong support point would be the level of 1.2200 followed by a point of static 1.2160. On the upside, immediate resistance lies at the 1.2300 psychological level, with further hurdles at 1.2350, coinciding with the 100-period SMA, and 1.2370, aligning with the 38.2% Fibonacci retracement of the recent downtrend. The pair’s inability to hold above the 1.2300 mark suggests continued downside risks unless a significant catalyst emerges to revive bullish sentiment. FORECAST GBP/USD could see an upside recovery if market sentiment improves or if the US Dollar weakens due to a shift in geopolitical or economic factors. Positive developments, such as a resolution to trade tensions or better-than-expected UK economic data, could bolster the Pound. Breaking through immediate resistance around 1.2300, and then reaching to 1.2350 (where lies the 100-period SMA) with the potential upside targeting 1.2370 in line with the 38.2% Fibonacci retracement of the latest downtrend could be possible after a breach through above this level for quite some time as it can suggest a turning of the bears around and possibly increased demand. On the downside, GBP/USD remains vulnerable to further losses, particularly if the US Dollar strengthens due to safe-haven demand amid escalating trade war fears. Weakness in UK economic data, such as rising unemployment or slowing wage growth, could exert additional pressure on the pair. A clear break lower to 1.2230 support, where the 20-period and 50-period SMAs meet, would widen opportunities for a drop down to 1.2200 and 1.2160. The extent of the decline will be exacerbated if bearish momentum continues since lower GBP/USD levels are possible during a bearish trend, especially with no positive cues or change in market mood.

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Currencies GBP/USD

GBP/USD Under Pressure Below 1.2200 After Soft UK Inflation Data

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  • January 16, 2025
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GBP/USD is under pressure, trading around 1.2220 after two days of gains, following softer-than-expected inflation data from the UK. The Consumer Price Index (CPI) for December showed a smaller-than-anticipated increase, which could provide the Bank of England with room to cut interest rates in February. As such, the Pound faces headwinds, especially against a weakening USD, despite lower-than-expected US Producer Price Index (PPI) figures. Technically, GBP/USD remains above the 23.6% Fibonacci retracement level but needs a sustained break above the 1.2240 resistance to regain bullish momentum. However, a drop below 1.2200 may trigger further downside towards 1.2150 or even 1.2100, especially if US inflation data later in the week influences market expectations for Federal Reserve policy. KEY LOOKOUTS • Readings could pave the way for potential interest rate cuts by the Bank of England, weighing on the Pound’s strength against the USD. • To maintain the momentum, GBP/USD needs to break above 1.2240 resistance and then target 1.2280 and 1.2300. • US Consumer Price Index is going to play a significant role in determining the Federal Reserve rate outlook, thus affecting USD dynamics and GBP/USD price action. • Optimism over US trade policies and ease concerns over the Fed rate cuts could cap the further USD weakness and give some support to the GBP/USD pair. GBP/USD major key watch items would be UK inflation data that will impact the decision of interest rate cuts from the Bank of England, putting even more pressure on the Pound. Technically, the pair faces resistance around 1.2240, and a break above this level could take it towards 1.2300. Additionally, the US Consumer Price Index report that is due out soon will be crucial in forming expectations for Federal Reserve policy, which may influence the strength of the USD. Finally, the overall market sentiment about US trade policies and economic conditions will also determine the short-term direction for GBP/USD. The immediate direction of the GBP/USD would depend on the UK inflation report, possible rate cuts by the BoE, technical resistance around 1.2240, and US CPI. • Softer-than-expected CPI data in December might provide the BoE with space to cut interest rates, hurting the Pound. • The pair is resisting at around 1.2240; a sustained break above this point could take the pair towards 1.2300 and other higher Fibonacci levels. • US PPI data was weak, which contributed to a softer USD in the short term. • The US Consumer Price Index (CPI) release will be important in shaping expectations for the Federal Reserve’s interest rate policy. • Optimism over US economic conditions and easing trade concerns could provide support to the USD, limiting further Pound gains. • The 23.6% Fibonacci retracement level at 1.2200 is critical, and there is a potential for further upward movement if GBP/USD can break above 1.2240. • The daily RSI for GBP/USD has started to show signs of being oversold, which might suggest a bounce near key support levels like 1.2150-1.2100. GBP/USD is under pressure as softer-than-expected UK inflation data increase the chances of possible interest rate cuts by the Bank of England. Consumer Price Index for December came in at 2.5% below expectations, and that has led to concerns whether the UK economy may indeed be easing inflationary pressures, especially concerning stagflation risks. The pair is technically holding above the 23.6% Fibonacci retracement level at 1.2200; however, much upside remains dependent upon a clear break above the resistance zone at 1.2240. The US Consumer Price Index for April will also determine the way ahead for Federal Reserve monetary policy and USD movements in the coming weeks. A less-than-expected print on CPI would further keep USD pressure low, but a better print would likely increase the chances of a strengthening dollar. Improved US economic conditions as trade tension issues ease should add to support the USD as well. Traders will be focusing closely on both US and UK data flows in the next days, which will probably decide the major market moves for the GBP/USD in the near future. TECHNICAL ANALYSIS From a technical view point, GBP/USD is holding above the short-term support at the 23.6% Fibonacci retracement level at 1.2200. A break above the 100-hour Exponential Moving Average (EMA) at 1.2240 can sustain higher, where 1.2280 represents a possible area on the 38.2% Fibonacci level. Further strength might take the price to the 1.2300 region and the 1.2315 resistance area. If the price drops below 1.2200, some of the significant support levels include 1.2150-1.2140 and then 1.2100. A clear violation below 1.2100 would most probably establish a continuation of the broader trend, leaving it open to a further drop. GBP/USD Daily Price Chart Sources: TradingView, Prepared By ELLYANA. FORECAST If GBP/USD breaks above the immediate resistance at 1.2240 (100-hour EMA), then it could make its way toward the next key resistance at 1.2280, which also coincides with the 38.2% Fibonacci retracement level. Further up, the pair may push toward 1.2300, followed by the 1.2315 resistance zone. A strong break above 1.2315 may signal a potential rally toward the 50% Fibonacci level at 1.2335, further extending gains. On the negative side, if GBP/USD cannot sustain a rally above 1.2200, then a move below that support may find the next strong support in the region of 1.2150-1.2140. A breach of that zone may see 1.2100 in the near future. Once 1.2100 falls, then recent lows might be seen, thus continuing the major downtrend and bringing possible targets in the vicinity of 1.2050 or even 1.2000.

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