The GBP/USD has been rising, mainly because the US Dollar is weakening due to geopolitical tensions. Recently, the US President suggested buying Greenland, which didn’t sit well with the EU and Denmark. Tensions rose when there were talks of tariffs on European goods, leading European countries to respond, which is further impacting US industries.

Trade War Updates

This week is busy for traders, with important trade war updates and economic data releases. The UK will share information about employment and inflation, while the US will do the same. President Trump is also set to speak, which could affect market reactions. Although GBP/USD has recently risen, there are signs it may drop, as it struggles to stay above 1.3400. The Pound Sterling is heavily influenced by the Bank of England’s decisions, which focus on keeping prices stable. Key economic indicators like GDP, PMI, and trade balances greatly affect the Pound’s value in foreign exchanges, as does the larger economic environment. The trade dispute between the US and EU over Greenland is currently driving the markets. With a February 1 deadline for possible tariffs, we can expect high volatility in currency pairs involving the US Dollar. In this uncertain climate, buying options can be appealing, offering chances for significant moves while managing risk. It’s important to remember the impact of the US-China trade war that began in 2018, which is a key historical reference. Research from that time, including a study by the Federal Reserve, suggested that tariffs cost the US economy about 0.25% of real GDP and caused notable price increases for consumers. The current threat of a 25% tariff over a much larger trade relationship could lead to even greater economic consequences.

GBP and USD Indicators

The recent uptick in GBP/USD is more about dollar weakness than pound strength, so we need to closely monitor the upcoming UK data. Reflecting on the persistent inflation in the UK during 2024 and 2025, a high CPI reading this week might prompt the Bank of England to keep its strict policies, which would support the Pound and potentially turn the current rise into a sustained one. For the US, the proposed tariffs could drive inflation, complicating the Federal Reserve’s decisions. Thursday’s PCE inflation data will be critical; if it’s high, it could increase the Fed’s challenge of balancing inflation control with supporting an economy at risk from a trade war. The S&P 500 VIX index, which tracks market volatility, has already risen 5% this month to 13.4, and we expect it to keep climbing as the tariff deadline nears. As GBP/USD remains in a downtrend from early January highs, a cautious yet optimistic approach is advisable. Using strategies like call spreads on GBP/USD can be effective, allowing us to profit from a potential rise toward the 1.3550 resistance Level while limiting risk if geopolitical tensions ease or if economic data falls short. Create your live VT Markets account and start trading now.

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