Daily Price Outlook
During the European trading session, the GBP/USD pair maintained its upward momentum, staying well-supported around the 1.2502 level and reaching an intraday high of 1.2508.
Despite growing concerns about stagflation risks in the UK economy, the British Pound showed resilience.
However, the Pound managed to recover its losses and climb back toward the 1.2500 mark against the US Dollar.
This recovery came as the US Dollar weakened following news that investors were digesting fears of potential 25% tariffs on Columbia imposed by former US President Donald Trump. This combination of factors helped support the GBP/USD pair during the European session.
US Dollar Weakens Amid Tariff Threats and Fed's Upcoming Decision, Boosting GBP/USD
On the US front, the broad-based US Dollar (USD) retreated, helping the GBP/USD pair recover its losses and climb back to near the 1.2500 level.
The Greenback weakened after investors digested news that former President Donald Trump had threatened to impose 25% tariffs on Columbia.
Trump made this threat over Columbia’s refusal to allow military flights carrying illegal immigrants, but he later decided to pause the tariffs after Columbia agreed to his terms.
As a result, the US Dollar fell back to around 107.50 from an intraday high of 107.80. This drop showed that investors no longer saw the Greenback as a safe haven, as they expected Trump’s tariffs to be used primarily as negotiation tactics.
ING analysts noted that there’s growing sentiment that Trump might not follow through on many of his protectionist threats, especially if concessions are made on trade.
Looking ahead, the main factor for the US Dollar this week will be the Federal Reserve’s (Fed) monetary policy decision, set to be announced on Wednesday. The Fed is likely to keep interest rates unchanged in the range of 4.25%-4.50%.
GBP Rises Amid Concerns of Stagflation and Growing Economic Weakness in the UK
On the GBP front, the British Pound is rising despite concerns over the growing risks of stagflation in the UK economy.
On the data front, the latest S&P Global UK Purchasing Managers Index (PMI) report for January showed that employment dropped for the fourth consecutive month, and cost pressures in the private sector are increasing.
This situation is likely to lead to higher inflation as businesses pass on rising input costs to customers.
Meanwhile, the slowdown in labor demand is partly due to the announcement from Chancellor of the Exchequer Rachel Reeves, who revealed plans to increase employers’ contributions to National Insurance.
As a result, businesses are cutting back on hiring, facing falling sales, and dealing with uncertainty about the future.
These signs of economic weakness are adding to worries about stagflation, with inflationary pressures returning. Chris Williamson, Chief Business Economist at S&P Global, noted that business conditions in 2025 are not looking promising.
Therefore, the UK’s worsening job market and rising inflation pressures are expected to make things more challenging for the Bank of England (BoE), which will announce its monetary policy decision on February 6.
Many traders are betting on a 25 basis point (bps) rate cut to 4.5%, which is affecting yields on UK 30-year gilts, causing them to drop by over 1% to around 5.15%.
GBP/USD – Technical Analysis
The GBP/USD pair is facing downward pressure, currently trading at $1.24427, reflecting a 0.29% decline in today’s session. The pair struggles to maintain momentum above the key pivot level of $1.24065, which serves as a crucial support zone.
A sustained break below this level could expose the currency pair to further downside risks, with immediate support at $1.23440, followed by deeper levels at $1.22921 and $1.22280.
On the upside, immediate resistance is seen at $1.25064, and a decisive breakout above this level could pave the way for further gains toward $1.25637 and $1.26131.
However, market sentiment remains cautious as traders weigh economic data releases from both the UK and the US, including inflation figures and central bank guidance, which may influence the pair’s trajectory.
The 50-day EMA, currently positioned at $1.23536, offers dynamic support and could serve as a critical inflection point for traders assessing the broader trend. If GBP/USD remains below the pivot level, selling pressure is likely to persist.
A bearish breakdown below $1.24065 could confirm further downside momentum, whereas a move above $1.24501 may indicate a potential bullish reversal.
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