Reuters reported on Saturday that Trump plans to impose an additional 10% import tariff on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the UK starting February 1st, until the U.S. is allowed to purchase Greenland. On Sunday, EU ambassadors reached a broad consensus to intensify efforts to dissuade Trump from imposing tariffs on European allies. Meanwhile, France has proposed a series of previously untested economic countermeasures. The primary driver behind the pound's weakness was the broad-based strength of the U.S. dollar. The UK's November GDP grew 0.3% MoM, its fastest pace since June, as reported last Thursday, but this data did not shift market expectations regarding the Bank of England's interest rate path. Traders still expect the BoE to cut rates by around 40 basis points before September. Market reaction to what appears to be positive economic data remained muted. Kallum Pickering, Chief Economist at Peel Hunt, noted that although the data came in stronger than expected, it is far from robust. UK economic activity remains weak and volatile at best, largely constrained by lackluster confidence in Labour government policies. Andrew Wishart, an economist at Berenberg Bank, echoed similar sentiments, arguing that the UK economy has lost growth momentum since the summer and added: "We expect this weak phase to persist into 2026 amid ongoing job losses and fiscal tightening." He explained that inflation may trend lower in this environment, potentially prompting the Bank of England to cut rates more than currently priced in by the market. Traders will closely watch upcoming UK employment and CPI data later this week. These reports may offer clues about the BoE's monetary policy outlook. If results come in weaker than expected, GBP/USD could face downward pressure in the near term.

Amid the news, the dollar faced some selling pressure as traders assessed the longer-term implications of Trump's latest moves. Khoon Goh, Head of Asia Research at ANZ, said: "Typically you would think tariffs being threatened would lead to a weaker euro," "But, as we've ​seen last year as well, when the 'Liberation Day' tariffs were getting put in place, the impact in FX markets actually has been more towards dollar weakness every time there is heightened ‍policy uncertainty emanating from the United States." Federal Reserve officials indicated they are in no rush to take further action until more evidence shows inflation is sustainably returning to the 2% target. Analysts at Morgan Stanley updated their 2026 forecast, now expecting the Fed to cut rates once each in June and September, instead of the previous projection of cuts in January and April.

Based on the daily chart, GBP/USD has pulled back and stabilized near the Bollinger Lower Band. A death cross emerged with the MACD and signal lines retracing toward the zero axis and nearing it, indicating that the correction could complete soon. Support lies near the EMA200 at 1.329. RSI is at 49, reflecting a wait-and-see market sentiment. The 4-hour chart suggests that the Bollinger Bands are narrowing, and moving averages are flattening. The support stays at around 1.34, and the MACD shows weakening bearish momentum, with a golden cross forming between the signal lines: signals of a possible rebound. Resistance is seen near the EMA50 and Bollinger Upper Band at approximately 1.342 and 1.348. RSI stands at 45, indicating lingering pessimism, though it is moderating. Meanwhile, RSI lows are gradually rising. Therefore, it is recommended to buy at lows.

Trading direction: Buy

Entry Price: 1.339

Target Price: 1.36

Stop Loss: 1.32

Support: 1.33/1.29/1.28

Resistance: 1.33/1.29/1.28