GBP/USD Holds Near Trend Highs as Tariff and Fiscal Concerns Ease
GBP/USD traded near a two-week high of 1.2345 on Tuesday, buoyed by easing fiscal concerns and Trump tariff relief sentiment. Sterling bulls were supported by a nascent bid for UK gilts, which saw yields fall 5-7 basis points across the curve, alleviating pressure from earlier fiscal jitters. However, lingering uncertainties around the trajectory of U.S. tariff policy and persistent concerns about the UK’s economic outlook—including above-target inflation, sluggish GDP growth, and public debt over 100% of GDP—kept gains capped. The market is also pricing in an 80% probability of a February BoE rate cut, which may weigh on GBP/USD in the near term.
Technical Analysis
Technically, GBP/USD faces significant resistance and downside risks. Immediate resistance is at 1.2345, Monday and Tuesday’s high, with further hurdles at 1.2390 (21-day moving average) and 1.2455, the 50% Fibonacci retracement of the 1.2811-1.21 decline. Support lies at 1.2260 (falling 10-day moving average), followed by Tuesday’s low at 1.2230 and Monday’s low at 1.2160. A sustained move above 1.2345 would signal bullish momentum, while a break below 1.2230 could set the stage for a test of the 2025 low near 1.21.
Market Outlook
Focus now shifts to tariffs and rate expectations. Sterling’s trajectory remains sensitive to developments in Trump’s tariff policies, as the potential for new measures adds a layer of uncertainty. Additionally, with the BoE expected to cut rates in February, sterling may struggle to sustain gains unless fiscal concerns abate further or U.S. economic data surprises to the downside. For now, GBP/USD appears range-bound, with tariff headlines and rate outlooks likely dictating short-term direction.