Bullish view
- Set a buy limit at 1.2500 and set a take profit at 1.2700.
- Add a stop-loss at 1.2400.
- Timeline: 1-2 days.
Bearish view
- Set a sell stop at 1.12500 and a take-profit at 1.2400.
- Add a stop-loss at 1.2600.
The GBP/USD exchange rate retreated on Monday morning as traders embraced a risk-off sentiment following Donald Trump’s decision to go on with tariffs. After peaking at 1.2710 last week, the pair pulled back to 1.2575, its lowest level since February 19.
UK and US PMI data ahead
The GBP/USD pair pulled back as the US dollar index rebounded following Donald Trump’s decision to impose tariffs on key American allies and trading partners. He will charge a 25% tariff on most products and an additional 10% on Chinese imports.
Tariffs have two major implications: slowing economic growth and boosting inflation. Economic growth is impacted as people lower their spending, while inflation happens when companies boost prices.
The GBP/USD pair also retreated after the US released the latest GDP and personal consumption expenditure (PCE) data. These numbers showed that the economy did well in Joe Biden’s term as the US president, while the core PCE figure pulled back a bit.
The next key data to watch will be the upcoming UK and US manufacturing PMI numbers, which will come out on Monday. Economists expect the S&P Global and ISM manufacturing PMI numbers remained above 50 in February, a sign that the sector is growing.
On the other hand, the UK manufacturing PMI figure will remain below the 50 level. Economists expect the data to show that the PMI figure dropped from 48.3 to 46.4.
Economists and the bond market expect that the Fed and the BoE will continue cutting interest rates later this year, especially if Trump’s tariffs lead to a slow economic growth.
GBP/USD technical analysis
The daily chart shows that the GBP/USD pair has pulled back to 1.2575 from last week’s high of 1.2710. It has moved below the 38.2% Fibonacci Retracement level at 1.2600.
The pair has remained above the 50-day moving average, a sign that bulls are in control for now. Also, it is slowly forming an inverse head and shoulders pattern, a popular bullish reversal sign. The current retreat is part of the formation of the right shoulder.
Therefore, the pair will likely continue falling as sellers target the right shoulders part at 1.2470, and then resume the uptrend, potentially to the 50% retracement point at 1.2765. A drop below the 23.60% retracement level will invalidate the bullish view.
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