GBP/USD forecast: Tariffs, US jobs and BoE rate decision in focus – Currency Pair of the Week

Major currency pairs like the GBP/USD came under intense pressure in the early hours of Monday’s session, along with the major indices and cryptocurrencies. But by mid-day in London, some of those moves had reversed at least partially, with traders picking up the dips in anticipation that the weekend price gaps would get filled. Currencies likely to be directly impacted by Trump’s tariffs fared the worst, with the US president saying EU tariffs “will definitely happen." Although the pound has fallen along with other major currencies, it may be able to regain its poise with Trump suggesting that a deal "can be worked out" with the UK. This means the risks to the GBP/USD forecast are less pronounced than the likes of the Canadian dollar or the euro.

Latest tariffs announcements boost US dollar

Overall, risk-off trade has dominated in the first half of Monday’s session, following Trump's trade tariff announcements. With tariffs against Canada and Mexico set to start tomorrow, there's not much time for a potential trade deal to be struck, but the fact we have seen a bit of an uptick in US futures and with the US dollar coming off its earlier highs, investors are probably anticipating some positive news to come out of all of this. For now, risk stays on the defensive side of things, keeping a lid on the GBP/USD forecast.

Key US data to take attention away from trade wars

This week’s economic data highlights include employment indicators from the US, along with a rate decision from the Bank of England, putting the GBP/USD forecast into focus. The US data in particular will be key to take attention away from trade wars, if only momentarily anyway. Monday’s highlight will be the ISM manufacturing PMI, seen staying steady around the 49.3 print from the month before. On Tuesday, we will have the JOLTS job openings data, which is expected to ease to 7.88 million after the higher-than-expected 8.10 million the previous month. The ADP private payrolls and ISM services PMIs will be released on Wednesday, followed on Thursday by the weekly jobless claims data. But the week’s highlights will clearly be on Friday with the release of the monthly jobs report. Last month saw payrolls come in well above expectations at 256K vs. 164K eyed, which helped to push out US rate cut expectations. This time, a more modest 154K growth is expected in payrolls, with average hourly earnings seen rising by another 0.3% month-on-month. The GBP/USD forecast could take a boost if this week’s US data, particularly NFP, come out weaker.

BoE likely to cut rates by 25 basis points

The Bank of England’s rate decision will be Thursday and a 25 basis point rate cut is fully priced in. The central bank is widely expected to trim the Official Bank Rate (OBR) to 4.50% from the current 4.75% level in an 8-1 majority decision. The BoE started cutting rates last August, paused in September, cut by another 25 bps in November and then paused again in December. It has been a “steady as she goes” approach. UK’s economic challenges call for further rate cuts, especially amid the resurgence of trade wars that has been re-ignited by Trump’s return to office as US president. Last month, UK retail sales (-0.3% m/m), GDP (+0.1% m/m) and CPI (+2.5% y/y) all came in weaker than expected.

Technical GBP/USD forecast: Key levels to watch

Source: TradingView.com

The recent price action on the GBP/USD chart was beginning to look a little constructive until Trump’s latest tariffs and tariff threats spoiled the party for the bulls. Now back below the key 1.2360-1.3400 pivotal area, the onus is on the bulls to show up again.

If they come back here and push rates back above this area on a daily closing basis, then that could be a sign of a bullish reversal, as rates will have gone back above the bearish trend line and the 21-day exponential moving average. In that case, we could see follow-up technical buying towards 1.2500 again with the possibility of forming its first higher high above January’s peak of 1.2523.

However, if the bulls don’t show up and the bears now manage to hold their ground around this broken support area of 1.2360-1.2400, then the pressure will remain. A few downside targets that may come into focus in this scenario include 1.2250, 1.2160 and then the liquidity below January’s low of just below the 1.2100 handle.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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