GBP/USD Collapses as Tariff Pressure, UK Recession Risk, and CPI Forecasts Trigger Bearish Wave

GBP/USD (British Pound / U.S. Dollar) Sinks Below 1.3450 as Tariffs, GDP Contraction, and CPI Bets Trigger Bearish Repricing

Trump Tariffs Ignite USD Rally While GBP Weakens on Recession Signals

GBP/USD collapsed to a fresh three-week low at 1.3450, breaking below key psychological support levels after U.S. President Donald Trump imposed sweeping 30% tariffs on the EU and Mexico. This move followed the breakdown of trade talks after a 90-day suspension period. Trump further threatened higher tariffs on Brazil, Canada, South Korea, and Japan, escalating global trade tensions. These protectionist shocks triggered safe-haven flows into the U.S. Dollar (USD), intensifying the selloff in GBP/USD, which had recently hit a yearly peak of 1.3788.

Meanwhile, the UK economy contracted -0.1% in Q2, disappointing market expectations of +0.1% growth. This marked the second consecutive quarterly contraction, signaling a technical recession. The pressure is now mounting on the Bank of England (BoE) to pivot toward rate cuts, with markets now pricing a 65% probability of a cut before October, driving rate differentials further in favor of the USD.

CPI Surprises and Dovish Fed Commentary Compound FX Volatility

Markets are bracing for the upcoming U.S. CPI release, expected to show inflation rising from 2.4% to 2.7% YoY, with core CPI forecast at 3.0%, up from 2.8%. These figures would validate tariff-driven price pass-through to consumers and potentially delay rate cuts by the Federal Reserve. Meanwhile, Fed speakers including Waller, Bowman, and Mary Daly have tilted dovish, hinting at two possible rate cuts by year-end, though a hot CPI print would challenge that outlook.

In contrast, the UK’s inflation picture remains subdued. The upcoming UK CPI release is expected to reflect weak domestic consumption, raising odds of BoE dovishness. The combination of weakening macro fundamentals in the UK and relative USD strength continues to tilt GBP/USD sentiment sharply to the downside.

Technical Breakdown Accelerates Below 1.3500 – GBP/USD Targets 1.3369

GBP/USD cracked decisively beneath 1.3500 and the 50-day SMA at 1.3495, which had been a strong support line. Momentum has now turned strongly bearish, with RSI entering oversold territory. Bears are now eyeing a retest of 1.3400 and possibly a move toward the June 23 low of 1.3369. The short-term resistance stands at 1.3500, followed by the 20-day SMA near 1.3583. Unless bulls reclaim these levels, the pair remains structurally bearish.

Intra-day traders are watching the BullTrading Easy Tops & Bottoms dynamic zones, which printed a red resistance band that failed to hold on the last test. The price accelerated through the level with clear momentum, confirming a bearish imbalance. A sell-limit entry above the failed zone with a 1:2 risk-reward setup has so far worked effectively. Position sizing now adjusts based on stop placement – tighter stops yielding larger position sizes under current volatility.

Currency Heatmap and Macro Divergence Favor USD Continuation

On a monthly basis, the British Pound (GBP) has weakened against all major currencies except the Japanese Yen, down 2.12% vs USD, 1.23% vs EUR, and 1.56% vs CHF. This reflects a broad reallocation away from UK assets amid signs of stagnation. The U.S. Dollar Index (DXY), by contrast, has seen consistent higher-lows since the start of Q3, building toward a breakout above the 99.39 resistance level if CPI comes in hotter than expected.

The GBP/USD correlation to U.S. trade policy and CPI trends remains elevated. With no major UK data due before CPI, traders remain focused on transatlantic macro divergence. If the U.S. inflation data confirms upside risks, expect further downside toward 1.3360–1.3320 as traders reprice Fed expectations and position for defensive exposure.

Verdict: SELL GBP/USD as Momentum Breaks Down, CPI and Trade Tensions Anchor Dollar Strength

The path of least resistance for GBP/USD remains lower, with clear momentum breaches, fundamental underperformance from the UK, and a USD supported by tariffs and CPI inflation. Bearish setups remain intact below 1.3500, and targets at 1.3400 and 1.3369 remain in play. Traders should continue favoring downside bias with volatility expected to rise sharply post-CPI.

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