British Pound Forecast: GBP/USD Teeters Following Another Tariff Tantrum

British Pound Forecast: GBP/USD Teeters Following Another Tariff Tantrum

• Trump confirms 25% tariffs on Mexico, Canada, and a fresh 10% on China
• GBP/USD struggles as risk-off flows boost the U.S. dollar
• Core PCE inflation data in focus amid U.S. growth concerns
• Rising wedge signals downside risk, with 1.2550 key support

Summary

Donald Trump says a U.S.-UK trade deal could be reached “very shortly,” though tariff threats remain in play. While talks progress, he confirmed 25% tariffs on Mexican and Canadian imports will take effect on March 4, alongside a fresh 10% levy on Chinese goods. Stocks and bonds slumped, while the USD firmed, leaving GBP/USD testing key support ahead of a risk-laden Friday. Core PCE inflation data looms large, with a 0.3% monthly gain expected.

Seeking a ‘Great’ Trade Deal

Donald Trump says the U.S. and UK are working on a new trade agreement, suggesting a deal could be reached “very shortly” to avoid potential tariffs. Speaking alongside UK Prime Minister Keir Starmer in Washington, Trump said both nations want a “great” deal, with U.S. officials—including Treasury Secretary Scott Bessent and Vice President JD Vance—leading negotiations. Starmer confirmed talks had begun, focusing on advanced technology to strengthen economic ties.

Trump didn’t commit to dropping tariff threats but hinted they "wouldn’t be necessary" if a deal is struck—suggesting he’s using the threat as leverage. The UK is America’s fifth-largest trade partner, with $317 billion in total trade last year.

While negotiations between the U.S. and UK remain ongoing, prospects for a deal with Mexico and Canada appear bleak with Trump confirming via social media that previously flagged 25% tariffs on imports entering the United States will be implemented on March 4. Additionally, Trump announced a further 10% tariff on Chinese imports, doubling an initial increase of 10% made in late January.

Event Risk Rising

Source: TradingView

Traders reacted to the news by selling bonds and stocks, while the U.S. dollar strengthened, leaving GBP/USD teetering heading into a Friday session laden with risk events. Not only will markets have to navigate trade-related headlines, but also the release of the Federal Reserve’s preferred underlying inflation measure, the core PCE deflator. An increase of 0.3% is forecast for January, which would see the annual rate move down to 2.6%—barring any revisions to prior data.

With U.S. growth concerns already elevated thanks to weakening economic data and the threat to consumption posed by higher tariffs, extra emphasis will be placed on consumer spending and income data released within the same report. In the UK, Bank of England Deputy Governor Dave Ramsden is scheduled to speak.

GBP/USD Biased Lower

GBP/USD sits in an established rising wedge, signalling a potential reversal or breakdown may be on the cards, continuing the broader downward trend. Zooming in, Thursday’s bearish move completed a three-candle evening star pattern, another formation often seen around market tops. Momentum is also shifting lower, with RSI (14) breaking its minor uptrend, though MACD is yet to confirm the signal.

Source: TradingView

For now, GBP/USD holds just above 1.2600, a level the pair has done plenty of work around in recent months. Below, 1.2550 and uptrend support located roughly 20 pips lower are levels of note. A break of the latter may facilitate a retest of the 50-day moving average, with 1.2335 after that. Above 1.2600, GBP/USD has struggled on pushes towards and through 1.2700 over the past week, making it a formidable resistance zone given the price and momentum picture.

-- Written by David Scutt

Follow David on Twitter @scutty