GBP/USD: Trade Tensions, Inflation, and Recession Risks Take Center Stage
Throughout the week, the pound lost momentum as new trade tariff threats from Washington shook global markets. President Donald Trump's administration announced sweeping tariffs of 25–50% on goods from dozens of countries, including key raw materials like copper and a broad spectrum of imports. The market’s focus has zeroed in on the escalating standoffs with Canada, the European Union, BRICS economies, and major Latin American exporters.
Aggressive headlines and unpredictable rhetoric from the White House have fueled robust demand for the US dollar—the world’s go-to safe-haven during trade confrontations. The surge in risk aversion sent GBP/USD tumbling toward 10-day lows near $1.3526. Moreover, the rollout of new sanctions and tariffs is curbing global trade momentum, compounding pressure on the broader forex market.
UK Macro: Recession Fears Deepen on Weak GDP and Industrial Data
The UK economy is grappling with intensifying headwinds. May GDP figures posted a surprise contraction of 0.1% month-over-month (versus a projected +0.1%), signaling the onset of a technical recession. Industrial production dropped by 0.9%, while manufacturing output slipped 1%—both disappointments relative to market expectations. These readings stoke concerns about the durability of Britain’s post-pandemic recovery, as persistent sluggishness in business activity undermines economic stability.
Such figures have direct implications for Bank of England policy. Policymakers are increasingly caught in a bind: taming stubbornly high inflation—still tracking above target—while avoiding measures that could further stifle growth. The evolving macro backdrop leaves the pound exposed to additional downside risk.
US Dollar Strengthens Amid Trade Risks and Hawkish Fed Tone
The US dollar has been buoyed by heightened geopolitical tensions and signals from the latest Federal Reserve minutes. Only a handful of FOMC members favor a rate cut as early as July, while the majority support a “wait-and-see” approach and lean toward easing later in the year. This policy stance has bolstered the greenback, placing risk-sensitive assets like the pound under further duress.
On the technical front, the Dollar Index (DXY) remains near local highs, capping GBP/USD’s recovery attempts. Dollar strength remains a formidable obstacle for sterling bulls in the current environment.
Inflation Data in Focus: UK and US CPI to Dictate Next Moves
The coming week’s central events will be CPI releases in both the UK and the US. These inflation prints are critical for shaping both the Fed’s and Bank of England’s policy outlooks. Should UK inflation overshoot expectations, GBP/USD could stage a temporary rebound; however, the pair’s ability to sustain gains will remain limited by weak macro data and deteriorating trade conditions.
US inflation and retail sales statistics will be pivotal for dollar sentiment. Weaker data could trigger a pause in USD appreciation and revive appetite for higher-beta currencies such as the pound. Conversely, robust US CPI will likely sustain dollar dominance.
Technical Picture: GBP/USD Tests Key Levels, Markets Poised for Volatility
GBP/USD has breached key support at $1.3643 (the February 2022 high, now acting as resistance). The daily RSI has dropped below the neutral 49 level, reflecting a clear tilt toward selling pressure.
The nearest support sits at the 50-day SMA ($1.3498). A break below here would expose the pair to further declines toward local lows at $1.3371 (June 23), followed by $1.3445 and the 100-day SMA at $1.3252. On the upside, resistance looms at the 21-day SMA ($1.3595), with further rallies likely capped by the psychological $1.3750 barrier and the $1.3800 zone.
- Bearish scenario: A sustained move below $1.3498 opens the path to $1.3370–$1.3250.
- Bullish scenario: A bounce above $1.3595 targets $1.3750, and possibly new year-to-date highs.
Strategic Takeaways for Traders: Volatility, Risks, and Tactical Approaches
Short-term outlook: Expect elevated volatility as trade headlines and inflation surprises drive rapid swings in GBP/USD. Any unexpected CPI results or tariff news will trigger immediate market reactions.
Medium-term strategy: Focus on breakouts or reversals at key support/resistance levels, employ tight stops, and lock in profits near technical barriers. Monitor Fed and Bank of England commentary closely, alongside industrial and inflation data from both sides of the Atlantic.
Global context: The GBP/USD trend remains heavily dependent on broader market sentiment. Persistent trade war risks and rate uncertainty favor continued dollar strength, keeping the pound under pressure. A shift toward more dovish rhetoric or evidence of easing US inflation could, however, prompt a correction or stabilization in sterling.