GBP/USD Forecast: Currency Pair of the Week – February 10, 2025

The impact of Trump’s promise to impose tariffs on steel and aluminium imports has been fairly muted in the FX markets so far in the day. As traders await clarity, they are also keeping an eye on the bond market, where yields have started to push higher again on fears about inflation. With Federal Reserve Chair Jerome Powell’s testimony, US CPI data, and key corporate earnings due this week, the GBP/USD forecast remains cautiously bearish following last week’s dovish rate cut by the Bank of England.

Will trade war risks further bolster the US dollar?

The US dollar ended last week well off its lows, supported by a sharp rise in inflation expectations. The University of Michigan’s survey showed consumers anticipating higher price rises over the next year—up from 3.3% to 4.3%. This is concerning, as such expectations often fuel actual inflation, especially if workers demand higher wages. The data followed a January payrolls report, which revealed a 0.5% month-on-month wage increase. While investors had priced in lower US rates recently, rising inflation expectations and speculation about Trump’s inflationary policies suggest the Fed will hold steady.

Trump’s tariff stance remains unpredictable. His early threats spooked markets, driving investors toward safe havens like gold. Now, his pledge to impose tariffs on steel and aluminium imports has heightened trade war risks. However, with equity markets stable, investors may see this as more of a negotiation tactic than a real threat. If tariffs are delayed or scaled back, the dollar’s appeal as a trade risk hedge could wane, potentially lifting the GBP/USD forecast. For now, uncertainty persists.

What will traders be watching from the UK this week?

There’s not much in the way of domestic data on Monday, but the macro calendar gets a little busier later in the week. Tuesday will see the BoE governor Andrew Bailey deliver a speech in London, while on the data front we will have the preliminary GDP estimate for Q4 on Friday, along with a few other macro pointers. These data releases will help the Monetary Policy Committee (MPC) of the Bank of England decide how to proceed with future rate cuts. At least two more quarter-point cuts are priced in for this year, after the BoE cut rates as anticipated last week. That wasn’t a surprise, but what a surprise was the fact two MPC members voted for a larger 50-basis-point cut. That kind of caught the market off guard, sending the pound tumbling and lifting the FTSE to a fresh record high. The GBP/USD has since stabilised, but with the US dollar remaining strong, could we see the cable ease lower again?

GBP/USD Forecast: Inflation pressures keep the Fed on hold

Friday’s data has all but ruled out a near-term Fed rate cut. Despite a softer headline payrolls figure, the labour market remains resilient, with steady wage growth leaving little room for policy easing. The University of Michigan’s inflation expectations data added to concerns about rising price pressures. With Trump’s policies likely to push inflation and employment higher, the Fed is expected to keep rates steady. This supports the dollar, particularly against the euro, which remains vulnerable to trade tensions.

Let’s see how this week’s key data releases will change that view, if at all:

Powell’s Testimony – Tuesday, 11 February (15:00 GMT): Amid Trump’s calls for lower rates, Powell is likely to reaffirm the Fed’s independence, given strong wage and inflation data. A dovish shift seems unlikely but could pressure the dollar.

US CPI – Wednesday, 12 February (13:30 GMT): A strong CPI reading would reinforce expectations of a prolonged Fed pause, supporting the dollar. Thursday’s PPI release will also be watched closely.

US Retail Sales – Friday, 14 February (13:30 GMT): Despite high rates and inflation, retail sales have held up. However, December’s weaker data raises questions about consumer spending. Corporate earnings, particularly from retailers and tech firms, will also provide insights into the US consumer’s health.

GBP/USD technical analysis

Source: TradingView.com

The GBP/USD remains below the pivotal level of 1.2500 after several attempts to break through it failed in recent weeks. For as long as we don’t see a decisive break above it, the GBP/USD forecast remains moderately bearish from a technical standpoint. As things stand, the cable is residing inside what looks to be a bear flag pattern. A potential break of the trend support around the 1.2350-1.2360 area could pave the way for further technical selling. The next level of support below that range comes in around 1.2250, followed by the 1.2100 handle and then the next psychological hurdle at 1.2000.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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