GBP/USD Price Holds 1.3450 Amid Fed Chaos and Trade War Tensions

GBP/USD Under Pressure as Market Sentiment Shifts

The GBP/USD pair slipped sharply at the start of the week, dropping more than 0.5% on Monday to a low of 1.3430 before rebounding slightly above 1.3450. The weakness came as safe-haven flows strengthened after President Donald Trump threatened tariffs as high as 200% on China over rare earth exports, rattling risk sentiment. This move coincided with a stronger U.S. dollar, driving Cable down from last Friday’s peak at 1.3553.

Political Turmoil and Fed Independence Concerns Impact GBP/USD

Adding fuel to volatility, Trump’s sudden removal of Federal Reserve Governor Lisa Cook raised questions over central bank independence. That development briefly weakened the U.S. dollar, allowing GBP/USD to recover to 1.3470 in early Tuesday trade. The market reaction highlights just how sensitive the pair is to political shocks. With the Fed already under pressure to cut rates after Powell flagged labor market cracks and inflation worries, political interference only amplifies downside risks for the greenback, giving sterling temporary relief.

Labor Market Stress, Tariffs, and U.S. Data Drive the Dollar

The U.S. unemployment rate has climbed to 4.2%, with companies slowing hiring amid higher import costs from Trump’s tariffs. Levies range from 10% to 50%, squeezing supply chains and lifting inflation expectations. These economic headwinds have markets betting heavily on a September rate cut. The CME FedWatch tool now prices an 84% chance of easing, up from 62% last month. This shift underpins sterling strength, as investors hedge against a weakening dollar. The next catalyst for GBP/USD is the Conference Board’s consumer confidence release, which could either confirm stronger sentiment near 1.3500 or trigger another slide back toward 1.3400 if confidence deteriorates.

Technical Picture for GBP/USD Remains Mixed

From a chart perspective, GBP/USD is consolidating between 1.3430 support and resistance near 1.3585. The pair trades around 1.3458 with the 50-day and 100-day EMAs converging near 1.3475, creating a heavy ceiling. The RSI at 46 shows muted momentum, while MACD remains flat. A decisive break above 1.3585 could unleash a run toward 1.3635 and even 1.3750, the July high. On the downside, failure to hold 1.3405 could expose 1.3360 and the critical 1.3200 zone. Traders should note that despite Monday’s sharp pullback, an inverted head-and-shoulders pattern is still visible on the daily chart, suggesting that a breakout above 1.3600 could target 1.4050 in the medium term.

COT Positioning Data Favors Sterling Bulls

Commitment of Traders data shows a notable reduction in net-short positions on sterling futures. Large speculators trimmed shorts by 9,500 contracts while adding the same amount of longs, cutting net-short exposure by 19,000 contracts in a week. This shift signals building confidence in the pound. With UK inflation staying sticky and expectations of immediate Bank of England rate cuts fading, the balance of risks is tilting in favor of sterling, especially as Fed easing bets accelerate. The positioning data aligns with the technical backdrop: if GBP/USD holds above 1.3430 and pushes through 1.3600, momentum traders could fuel a sharp rally.

Sterling Outlook: Geopolitics and Policy Drive Next Move

The sterling story is increasingly about the interplay between U.S. political shocks, Fed credibility, and UK monetary expectations. Trump’s tariff threats and Fed shake-ups weigh heavily on the dollar, while the BOE maintains a tighter stance with UK inflation still elevated. As it stands, GBP/USD at 1.3450–1.3480 trades at a pivotal inflection point. A sustained push above 1.3600 could open room toward 1.4050, while a break below 1.3400 would confirm renewed bearish control toward 1.3300. With volatility climbing and traders repositioning, sterling remains one of the most dynamic major pairs in the FX market.

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