GBP/USD Dips to 1.2402 as Fed Decision Looms & UK Trade Talks Boost GBP

Despite the pound’s weakness against the dollar, GBP remains resilient against other major currencies, supported by renewed optimism over UK trade relations with the US. Prime Minister Keir Starmer recently emphasized the potential for deeper economic ties, easing concerns about trade frictions under a potential Trump administration.

However, expectations of a Bank of England (BoE) rate cut in February, coupled with weaker UK economic data, could limit further GBP gains. Traders are watching upcoming macroeconomic events closely to determine the next move in GBP/USD.

UK Trade Optimism Supports GBP Amid Rate Cut Expectations

The pound has held steady against most major currencies, except for the US dollar and Japanese yen, thanks to upbeat trade discussions. In a recent Bloomberg interview, UK Prime Minister Keir Starmer stressed the importance of US-UK trade, noting that existing ties are already strong but have room for expansion.

• Starmer dismissed concerns over potential Trump-era tariffs, reassuring investors that trade relations will remain stable.

• The UK government is focused on economic growth, with the Oxford-Cambridge Growth Corridor expected to add £78 billion to the economy by 2035.

• Chancellor Rachel Reeves is set to outline economic expansion plans, which could boost market confidence in UK assets.

However, the outlook for GBP/USD remains mixed due to the Bank of England’s dovish stance. Markets expect a 25-basis-point rate cut at the BoE’s next meeting on February 6, following disappointing December retail sales and cooling labor demand. These factors could weigh on the pound in the short term.

US Dollar Strengthens on Fed Policy & Trade Developments

The US Dollar Index (DXY) has rebounded toward 108.00, as traders prepare for the Fed’s policy announcement at 19:00 GMT. While no rate change is expected, any hawkish language from Fed Chair Jerome Powell could drive further dollar strength.

Additional factors influencing USD demand:

• The White House confirmed a 25% tariff on Canada and Mexico, effective February 1.

• New tariffs on pharmaceuticals, advanced chips, and steel are under consideration to bolster US manufacturing.

• Any escalation in US-China trade tensions could increase safe-haven demand for the dollar.

With Fed policy and trade developments shaping sentiment, GBP/USD may remain under pressure unless the BoE signals a more cautious approach to rate cuts.

GBP/USD Technical Outlook – Key Levels to Watch

The GBP/USD pair has broken below its ascending channel, signaling bearish momentum on the 4-hour chart. The 50-day EMA at 1.23806 now acts as a key support level.

• Immediate Support: 1.23806 – A break below this could extend losses to 1.23439 and 1.22934.

• Immediate Resistance: 1.24270 – A recovery above this level could push GBP/USD toward 1.24622.

For now, the technical and fundamental outlook favors continued downside pressure unless GBP finds renewed support from positive macroeconomic catalysts.