The Pound Sterling (GBP) has climbed back to nearly 1.2800 against the US Dollar (USD) after reaching a monthly low of 1.2707. This recovery follows a downturn in the US Dollar, with the Dollar Index (DXY) dropping to around 103.00.
Expectations are growing that the Federal Reserve may reduce interest rates in June, as concerns about a US economic recession rise. Goldman Sachs increased recession probability to 45% from 35%.
Trade Concerns Impacting GBP
Concerns over US-China trade practices are impacting the GBP, with fears of economic downturn affecting UK businesses. UK Prime Minister Keir Starmer aims to protect domestic firms from Trump’s tariffs.
The Bank of England may adopt aggressive monetary easing strategies this year, influenced by potential UK economic risks. UK GDP data, set for release, will also impact the Pound’s performance.
The GBP/USD pair trades below the 20-day Exponential Moving Average (EMA), indicative of a bearish trend. Key support levels are noted near 1.2600, while 1.3000 remains critical resistance. The upcoming UK GDP release could be pivotal, with a consensus expectation of 0.1% growth.
The Pound’s slight upwards movement, pulling back towards 1.2800 from its monthly low, came in tandem with a broader weakening in the Dollar. That easing in the Dollar Index to near 103.00 reflects changing sentiment on the direction of US policymaking. Lower expectations for tighter monetary policy suggest more than just cautious optimism – they point to real concern about activity slowing across the Atlantic. Goldman Sachs lifting its recession odds isn’t something that happens without compelling reasoning. When a desk like theirs raises the US downturn probability from 35% to 45%, it’s not speculative — it’s based on observable stressors, macro data softening, and perhaps a reassessment of future rate path trajectories.
Now, looking across to the UK, the Sterling isn’t trading on strength alone — it’s recovering in relation to a more reactive Dollar. Domestic UK conditions remain brittle. Though some government efforts attempt to soften external shocks — particularly from renewed US protectionist trade measures — the underlying picture is still finely balanced. Starmer’s attempts to shield British industry, notably through tariff negotiations and policy counterweights, won’t remove long-term pressures but could provide short-term insulation.
Impact of Upcoming UK GDP Figures
In our positioning, we’re accounting for the upcoming UK GDP figures, with the market anticipating a marginal gain of 0.1%. That might look unremarkable, but in the present context, even modest growth could influence both the Pound and rate expectations. Whether the Bank of England decides on sharper monetary easing will still rest on whether data confirms a flatlining economy or if labour figures and inflation persist on the lower end.
Technically, the Sterling remains on a fragile footing. With prices trading below the 20-day EMA, there’s little to suggest any momentum shift just yet. The bearish indicators are untouched, and if support near 1.2600 gives way, we could see an acceleration lower. Resistance still clusters below 1.3000 — and the market’s behaviour as we approach that ceiling will offer deeper clues about positioning into the next quarter.
Liquidity is thinner than it appears, and we are mindful of potential volatility spikes around data releases — the GDP readout in particular. It won’t be enough to hit the forecast; the quality and breadth within the data, including business investment, household spending and net trade, will guide outcomes well beyond the headline.
Traders should not ignore US-China tensions either. While trade frictions are rarely new, they weigh slightly heavier now against the backdrop of political changes and uncertainty heading into the US election window. The indirect effects are becoming clearer: pressure on US corporates means spillover into supply chains, with downstream impact landing on UK exporters who are already teetering on narrow margins.
Overall, we’re viewing this move in GBP/USD as corrective rather than trend-defining, at least until there’s either validation through improved UK data, or clearer dovish signals from the Fed. A short-term bounce doesn’t yet justify a deviation from established risk controls or pricing shifts.
