The scale of GBP/USD's latest fall, which came as markets responded to more speculation about future Trump administration Tariff policy, indicates traders are preparing for further sterling declines in the near term. Cable's leg lower, following a report by CNN on potential Trump tariff moves, took it below the earlier 2025 low at 1.2353 hit on Jan. 2, to 1.2321. On the day, GBP/USD was down 1.18% versus losses of only 0.47% for EUR/USD, suggesting that traders may be taking a fresh look at sterling vulnerabilities. The dearth of UK data in early 2025 has kept the pound on the back foot, as traders react to robust U.S. economic reports that indicate the Fed is likely to remain on hold deeper into 2025 than recently expected.

The dollar has risen on the back of steady front-end yields, as the Fed has shifted to a more hawkish narrative. Additionally, there has been a significant run-up in long-end U.S. Treasury yields as Trump trade momentum increases.

Sterling bulls will be looking for support from BoE Deputy Governor Sarah Breeden’s speech on Jan. 9, where she will discuss the outlook for inflation and monetary policy. However, a dovish lean by Breeden could facilitate a test of the late-April 2024 low at 1.2299, a break below which would put October 2023 lows sub-1.21 in sharp focus.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)