GBP/USD Swings as Trade War Developments Drive Volatility
GBP/USD experienced sharp fluctuations on Monday, initially rallying to 1.2455 as the U.S. dollar weakened following President Trump’s decision to pause tariffs on Canada. However, the pair quickly retreated to 1.2384 after the U.S. implemented new tariffs on Chinese goods, prompting retaliatory measures from Beijing, which announced counter-tariffs set to take effect on February 10. The volatility in sterling reflects the broader uncertainty surrounding global trade policies and their impact on risk sentiment, with GBP/USD mirroring the ebb and flow of tariff-related news.
Technically, GBP/USD remains within a choppy trading range. The pair found support at 1.2384, just above the previous pullback low from 1.2435 after the Mexico tariff pause. Resistance levels are stacking up, with 1.2458 marking the 76.4% Fibonacci retracement of the 1.2523-1.2249 decline, followed by 1.2472, which could serve as a near-term ceiling if risk sentiment improves. A break below 1.2384 would expose further downside, potentially retesting the 1.2300 handle, while a sustained push above 1.2458 could see sterling attempt to reclaim last week’s highs.
Looking ahead, GBP/USD traders will monitor trade-related headlines and broader risk sentiment. With China set to impose tariffs on U.S. goods next month, geopolitical tensions remain a key driver of FX markets. Additionally, domestic political risks in the UK are growing, with a YouGov poll showing Reform UK surpassing both Labour and the Tories in voter popularity, adding uncertainty to sterling’s outlook. Until more clarity emerges on trade policy and UK political stability, GBP/USD is likely to remain volatile within its current range.