GBP/USD Forecast: Pound Risks Wild Swings as Geopolitics, Trump Tariffs, and Key Data Collide

• GBP/USD caught between geopolitics, Trump tariffs, and key U.S. data.
• Rising wedge pattern warns of potential downside risks.
• Ukraine headlines and trade policy shifts driving market sentiment.
• Friday’s U.S. payrolls report could be the next major volatility trigger.

Summary

Geopolitics and major U.S. economic data are set to collide this week, creating a backdrop for two-way volatility in GBP/USD. Correlation analysis suggests cable is trading more as a proxy for the odds of a Ukraine-Russia peace deal and the risk of an escalating U.S.-European trade war. That hints headline risk may overshadow known event risks later in the week. Technically, downside risks have increased, but bulls don't look quite ready to pack it in just yet.

GBP/USD Reverts to Geopolitical Play

GBP/USD has reverted to being a geopolitics trade rather than one driven by traditional factors like interest rate differentials. The chart below tracks its rolling 20-day correlation with various variables from the rates, FX, energy, and stock index futures universe. 

Source: TradingView

While there’s been a weak inverse correlation with 2025 Fed rate cut expectations (yellow) and U.S.-U.K. interest rate differentials (grey, blue, black), shifts in rate expectations are having only a modest influence. The bigger story? U.S. trade policy and Ukraine.

GBP/USD has posted a -0.9 correlation with European natural gas futures over the past month—good news on the geopolitical front has generally lowered gas prices, pushing cable higher. While the U.K. is a major energy exporter, the link makes sense given the broader economic tailwinds of cheaper energy, from cooling inflation to lower rates. Similarly, strong correlations with EUR/USD and German DAX futures highlight the common themes driving risk appetite.

This suggests GBP/USD will remain highly sensitive to headlines about Ukraine peace talks. So too will developments on U.S. tariffs, with a 25% levy on Canadian and Mexican imports and an extra 10% on Chinese goods set to take effect on March 4. Markets are only partially pricing in the risk, meaning whether they go ahead as planned could materially impact GBP/USD—especially with European tariff decisions due in early April. If history is any guide, a stronger U.S. dollar is likely if the levies proceed.

Headline Risk May Trump Data

Source: TradingView

Geopolitical uncertainty means normally high-impact event risks may take a back seat unless there’s clarity on trade policy or Ukraine.

Friday’s U.S. payrolls report is the undisputed headline act—especially with concerns about the consumer growing. Despite the name, it’s really the unemployment rate that matters most, given that’s what the Fed is judged on. If payrolls and unemployment send conflicting signals, expect markets to eventually follow the latter.

Before that, keep an eye on ISM manufacturing and services PMIs—both known market movers. A shockingly weak read could stoke risk aversion, adding to fears of an abrupt U.S. growth slowdown.

For GBP/USD, there’s little on the U.K. calendar, but Monday’s Eurozone inflation print and Thursday’s ECB decision warrant attention given the strong correlation with EUR/USD. With a 25bp ECB cut fully priced, the focus will be on updated economic forecasts and forward guidance regarding the rates outlook.

GBP/USD: Risks Skewing Lower

Source: TradingView

GBP/USD remains within a rising wedge, a pattern that typically warns of an eventual return to the broader bearish trend. With RSI (14) breaking its uptrend and MACD on the verge of crossing below its signal line, momentum is shifting lower. However, unless these bearish signals trigger a clean wedge break, keeping an open mind for two-way setups seems the better option.

1.2600 has been a key pivot in recent months, acting as both support and resistance. Above, 1.2720 stands out as a critical zone, aligning with the wedge uptrend and horizontal resistance. A break there could put the 200-day moving average and 1.2803 in focus.

On the downside, 1.2550 marks the intersection of the lower wedge trendline and minor horizontal support, making it a key level this week. A break lower may open the door to a move towards the 50-day moving average, with 1.2335 as the next notable downside target.

-- Written by David Scutt

Follow David on Twitter @scutty

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