GBP/USD Edges Lower with Traders on Alert for Trump's Economic Plans

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GBP/USD experiences a pullback to around 1.2300 during the Asian session on Tuesday, following more than 1% gains in the previous day. The pair faces pressure as the US Dollar recovers from its recent losses, fueled by news that President Donald Trump plans to instruct federal agencies to review tariffs and assess trade relationships with Canada, Mexico, and China.

The US Dollar Index (DXY), which tracks the US Dollar's performance against six major currencies, stands at approximately 108.30, trimming recent gains. The US Dollar faces downward pressure as the US Treasury yields on 2-year and 10-year bonds remain subdued at 4.23% and 4.54%, respectively.

Traders expect the US Federal Reserve (Fed) to keep interest rates between 4.25% and 4.50% in the next three policy meetings, according to the CME FedWatch tool. However, there are concerns that Trump's policies could stoke inflationary pressures, limiting the Fed to just one more rate cut.

The Pound (GBP) saw strength as demand for UK gilts increased following disappointing UK Retail Sales data for December. Retail sales fell by 0.3%, missing the anticipated 0.4% growth, which followed a slight increase of 0.1% in November.

The unexpected drop in UK Retail Sales has heightened expectations for dovish moves from the Bank of England (BoE). Oxford Economics analysts predict the BoE may lower interest rates by 100 basis points (bps), bringing rates down to 3.75% by the year’s end.

Paraphrasing text from "FXSTREET"all rights reserved by the original author.