- Trump announced heavy tariffs on Canada, Mexico, and China starting Feb 4th.
- Traders slashed expectations for Fed rate cuts this year.
- Market participants are looking forward to a BoE rate cut this week.
The GBP/USD forecast shows a surging dollar after Trump announced tariffs that will likely cause trade wars. On the other hand, the pound remained subdued ahead of a likely Bank of England rate cut on Thursday.
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On Monday, the dollar rallied against its peers after Trump announced heavy tariffs on Canada, Mexico, and China starting Feb 4th. Although markets were anticipating tariffs, this came sooner than expected. Imports from Mexico and Canada will now have a 25% duty, while those from China will have a 10% duty. The announcement caused panic in various markets over the impacts on global trade. Meanwhile, Canada and Mexico have vowed to strike back, meaning trade wars.
The impact of tariffs on the global economy will be negative as they will affect trade. However, in the US, the local economy will benefit from increased demand. At the same time, local production will increase, boosting the manufacturing sector. As a result, the economy will remain resilient, boosting the dollar and keeping the Fed on a cautious path. After Trump’s announcement, traders slashed expectations for Fed rate cuts.
Meanwhile, market participants are looking forward to a BoE rate cut this week as the UK economy softens. The pound ended January down due to several weak economic reports that pointed to a slowdown.
GBP/USD key events today
GBP/USD technical forecast: Price gap suggests solid bearish momentum
On the technical side, the GBP/USD price has gapped below the 1.2351 support level, indicating strong bearish sentiment. At the same time, the RSI trades near the oversold region, suggesting solid bearish momentum.
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The previous uptrend paused when bulls reached the 1.2501 resistance. Bears emerged to push the price below the 30-SMA before the week ended. Prices opened this week well below last week’s close, creating a gap. This is a sign that there was a bearish catalyst over the weekend.
However, the price might have to fill this gap before it continues lower. Therefore, it might rebound to retest the 30-SMA resistance. After filling the gap, the price might break above the SMA to show a bullish shift in sentiment. However, if the SMA holds firm, bears will aim for the 1.2200 support level.
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