GBP/USD Climbs Toward Multi-Month High as Dollar Slides on US-China Tariff Escalation

14/04/2025

Market Overview

The British pound extends gains as the new week begins. The GBP/USD rises towards the 1.3200 mark amid fresh selling pressure on the dollar. US economic sentiment has weakened after a renewed trade spat between China and the US. Moreover, diverging monetary outlooks also fuel the rally in the pound.

Fundamental Analysis

The GBP/USD marked its fifth consecutive day of gains on Monday, proceeding through the London session. Investors are offloading the US dollar due to trade tension triggered by China’s retaliatory tariffs. The 90-day pause of tariffs excludes China, which makes the markets jittery as the potential impact could be unknown.

The dollar index (DXY) plunged to the 99.00 area, the lowest level in three years. Deteriorating consumer sentiment and fear of a drawn-out trade war have contributed to the Greenback’s weakness. The UoM consumer sentiment data sharply dropped to 50.8 in April, while inflation expectations spiked to 6.7%. PPI data fell to 2.7% in March from 3.2% previously.

Markets now anticipate the Federal Reserve cutting rates as early as June and further easing by 2025 by 100 bps. However, Fed officials are cautious, acknowledging the unpredictability of trends under current policies. Hence, the outlook has become more fragile due to uncertainties.

On the other hand, the pound’s strength is also driven by optimism around the UK’s economic data. The labor market is expected to stay consistent, with unemployment at 4.4% and average earnings slowing to 5.7%. UK CPI is also expected to show further easing, which may increase the likelihood of a rate cut by the BoE in May.

UK Chancellor Rachel Reeves has warned of a challenging period due to Trump’s trade policies. However, he emphasized expanding ties with the EU. With diverging central bank policies, the GBP/USD pair may continue higher towards 1.3207 which is 6-month peak.

Technical Analysis

The GBP/USD pair appears to be consolidating within the range of the current hourly candle, hovering near its highs. This price action may indicate an attempt to grab liquidity in the market. If there is a sudden strengthening of the USD or weakness in the GBP, it could lead to a bearish move.

A strong bearish confirmation would come in the form of a candle that establishes a lower low and closes below the previous candle, or a candle that successfully grabs the liquidity of the prior candle and closes beneath its low. Such a formation would signal a potential continuation to the downside.

In this scenario, the price may target external liquidity levels below current market prices, making these areas potential zones of interest for bearish traders.