GBP/USD Jumps to 1.2685, Almost 5% Recovery From Lowest Level for 2025

Key moments

• The GBP/USD exchange rate has reached its highest level since December 18, driven by the US dollar’s decline and easing geopolitical tensions.
• The US dollar’s performance and potential tariff imposition on Canada and Mexico are key factors influencing the GBP/USD pair.
• The upcoming US GDP and initial jobless claims data are unlikely to significantly impact the GBP/USD pair.

The British pound has experienced a significant surge against the US dollar, reaching its highest point since mid-December at 1.2685, marking a nearly 5% rebound from its lowest level this year. This upward trend is largely attributed to the US dollar’s decline from its year-to-date high of $110 to $106, as certain geopolitical tensions have eased while others have intensified. Notably, the US is engaged in discussions with Russia to potentially end the conflict in Ukraine, and a ceasefire has been established between Israel and Hamas. These developments have contributed to a decrease in risk aversion, leading to a decline in the US dollar’s value.

A key factor influencing the GBP/USD exchange rate is the performance of the US dollar, which has been impacted by various macro risks, including the potential imposition of tariffs on imported goods from Canada and Mexico by the US. This move, proposed by Donald Trump, could lead to retaliatory measures from the affected countries, potentially undermining the USMCA deal, aimed to promote trade between the US, Canada, and Mexico.

However, the proposed tariffs could lead to a trade war, causing uncertainty and volatility in the markets. The situation is being closely monitored by investors, who are weighing the potential consequences of such a move on the global economy.

In terms of economic data, the UK has a relatively quiet schedule, whereas the US is set to release its latest GDP and initial jobless claims data. Economists anticipate that the US economy expanded by 2.3% in the final quarter of last year. Although this data is significant, it is unlikely to have a substantial impact on the GBP/USD pair, as it is the second estimate and the market has already factored in the expected outcome. The initial estimate, released earlier, provided a general idea of the US economy’s performance, and the second estimate is not expected to deviate significantly from it. Furthermore, the Federal Reserve is expected to maintain higher interest rates due to rising inflation, which may not be affected by the upcoming GDP report.

The Federal Reserve’s decision to maintain higher interest rates is driven by concerns over rising inflation, which has been fueled by a strong labor market and increasing wages. The central bank aims to keep inflation in check by adjusting interest rates, and the latest data suggests that it may need to take a more hawkish stance to achieve this goal. The implications of this decision will be closely watched by investors, who will be looking for signs of how the Fed’s actions will impact the US economy and, in turn, the GBP/USD exchange rate.

From a technical analysis perspective, the GBP/USD exchange rate has maintained its strong upward momentum this month, surpassing the 50-day moving average and the Ichimoku cloud indicator.