GBP/USD slid to 1.2432 on Tuesday, down 0.55% in the NY session, as renewed U.S. tariff threats from President Trump fueled broad-based dollar strength. With global trade uncertainties resurfacing, sterling was pressured alongside other currencies tied to economies vulnerable to trade disruptions. Adding to the downside, market expectations continue to price in an 80% chance of a 25bp BoE rate cut in February, contrasting with a steady Fed outlook until at least June. These policy divergences leave the dollar at an advantage over the pound, limiting any upside attempts ahead of Wednesday’s Fed rate decision.
Technically, GBP/USD faces significant resistance levels. Tuesday’s low of 1.2497, along with the falling 55-day moving average at 1.2533, serves as the first upside hurdle. Beyond that, stronger resistance sits at 1.2623, marked by the daily Ichimoku cloud base. On the downside, immediate support lies at 1.2415 (Tuesday’s low), with additional protection at 1.2342 (rising 10-day moving average) and the key 1.2294 level from January 23. Elevated three-month ATM option volatility and negative 25-delta risk reversals indicate that market sentiment remains skewed toward further downside in GBP/USD.
Upcoming events will determine sterling’s next move. The Fed’s rate decision and press conference will be the primary driver, with futures currently indicating a steady Fed policy stance. If Chair Powell signals a more prolonged pause or maintains a neutral tone, GBP/USD could struggle to rebound. Additionally, any escalation in Trump’s tariff rhetoric could further pressure risk-sensitive currencies, including sterling. Until monetary and trade policy uncertainties are resolved, GBP/USD remains vulnerable, with a potential retest of 1.2342 and 1.2294 in the coming sessions.