The world that Donald Trump is shaping is markedly different from its earlier iteration, compelling Forex currencies to adapt to new drivers while disregarding the previous ones, regardless of their strength. Let’s discuss this topic and make a trading plan for the GBPUSD pair.
The article covers the following subjects:
Major Takeaways
- UK inflation has accelerated to 3%.
- The futures market does not expect two BoE rate cuts.
- The pound reacts to tariff threats.
- Long trades on the GBPUSD pair if the price breaks through the resistance level of 1.2635.
Weekly Fundamental Forecast for Pound Sterling
Recent economic data from the United Kingdom indicates a pickup in inflation, reaching its highest point since March 2024. The labor market continues to demonstrate strength, and signs of real wage growth suggest that the economy may display signs of expansion. With this in mind, what additional factors would be required for the GBPUSD pair to rally? This question is particularly relevant given the uncertainty surrounding the Bank of England’s expected monetary expansion, as the derivatives market is unsure of two acts before the end of 2025. However, Donald Trump’s comeback to the White House has significantly impacted the Forex market.
In January, UK consumer prices rose from 2.5% to 3%, core inflation increased from 3.2% to 3.7%, and services inflation surged from 4.4% to 5%. The British pound strengthened, reaching the first of two bullish targets of $1.26 and $1.271. However, the GBPUSD pair failed to move higher. In February, the Bank of England predicted that CPI would accelerate to 3.7% and services inflation to 5.2%. Against this backdrop, prices have room to grow.
UK Inflation Change
Source: Bloomberg.
The Bank of England’s efforts to curb inflation are still underway, and the derivatives market has reduced the expected scope of monetary expansion through the end of 2025 to 49 basis points. Following February’s repo rate reduction to 4.5%, the market had anticipated three additional cuts by the end of the year. However, they now foresee only two rate cuts. Under normal conditions, this should have boosted the GBPUSD pair. However, market participants now focus on external factors, such as Donald Trump’s tariffs, which have become a more prominent influence than monetary policy. It remains to be seen how long this shift in market sentiment will persist.
BoE Rate Cut Expectations
Source: Bloomberg.
The pound is a pro-cyclical currency, which is sensitive to changes in the global trade system. Investors are speculating whether the US President has truly decided to dismantle it in order to construct a new global order with the America First principle or if Trump’s tariff threats are part of a negotiation strategy. While market indicators suggest the latter, the GBPUSD pair is gaining traction.
At the same time, the UK might not be concerned about a trade war with the US due to the approximate balance of foreign trade. However, if the main trading partner, the EU, is engaged in a trade war, the UK economy will face strong headwinds. Until that happens, the GBPUSD pair has the potential to exhibit a significant upward trend.
The duration of the GBPUSD bullish trend hinges on the US inflation figures. If inflation accelerates in early 2025 but then experiences a slowdown, similar to the 2024 trend, the US dollar is expected to weaken in the second half of the year as the Fed will have to resume its monetary expansion cycle. However, if inflation remains elevated, the GBPUSD pair is likely to revert to a downtrend.
Weekly GBPUSD Trading Plan
In the near term, the GBPUSD pair will likely continue to fluctuate in response to the White House’s trade policies. A breakout of the 1.2635 resistance level will generate a buy signal, allowing traders to open more long trades. Conversely, if the 1.256 support level is pierced, the pair will likely face a sell-off.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
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