GBP/USD Weekly Outlook: Pound Sterling poised for a fresh downtrend?

The Pound Sterling (GBP) demand fizzled against the US Dollar (USD), fuelling a GBP/USD correction from ten-week highs of 1.2716.

Pound Sterling gives in to the USD resurgence

Despite the resilience shown in the first half of the week, the Pound Sterling succumbed to the unabated haven demand for the Greenback in the latter part. The GBP/USD pair, therefore, snapped its three straight weekly gains, pulling back from the levels last seen in December 2024.

The pair’s early advance was sponsored by the expectations of divergent interest rate cut outlooks between the US Federal Reserve (Fed) and the Bank of England (BoE). Despite hot UK inflation data and gloomy economic prospects, the BoE is predicted to implement fewer rate cuts this year.

On the other hand, markets continue pricing in two Fed rate cuts in 2025 in the face of discouraging US economic data that rekindles slowdown concerns. On February 21, the S&P Global said that the US Composite Flash PMI Output Index fell from 52.7 in January to 50.4, marking a 17-month low and fuelling worries over the economic outlook.

This narrative acted as a drag on the US Dollar while supporting the Pound Sterling.

Further weakness in the USD was sponsored by the return of risk appetite as China rolled out fresh rural revitalization measures in its annual rural policy blueprint for 2025. Also, hopes for a potential delay in tariff implementation on Canada and Mexico added to the market optimism, driving GBP/USD to over two-month highs of 1.2716.

Additionally, US President Donald Trump’s confirmation on Thursday that his proposed 25% tariffs on Mexican and Canadian goods will take effect March 4, along with an extra 10% duty on Chinese imports, following the earlier back and forth, boosted the US Dollar recovery.

Subsequently, the major turned south and gave up the 1.2600 level as well. The Greenback shrugged off dismal US economic data releases and the ongoing sell-off in the US Treasury bond yields amid an increased flight to safety as Trump’s tariff threats returned to the fore.

Data on Thursday showed that the second estimate of the fourth-quarter US Gross Domestic Product (GDP) held steady from the advance estimates, showing an annualised growth of 2.3% in Q4 2024. Meanwhile, the number of Americans filing for jobless benefits rose by 22,000 to 242,000 for the week ending Feb. 22, hitting the highest level in three months.

The final data release from the US showed on Friday that the Personal Consumption Expenditures (PCE) Price Index and the core PCE Price Index both rose 0.3% on a monthly basis in January. These figures matched analysts' estimate and failed to trigger a noticeable market reaction.

Week ahead: US tariffs and Nonfarm Payrolls in the spotlight

It’s a quiet start to the US Nonfarm Payrolls (NFP) week, barring any volatility infused by US President Donald Trump’s tariff talks over the weekend.

Regarding economic data releases, the US Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) will be of note for GBP/USD traders on Monday.

Tuesday is data-dry from both sides of the Atlantic. Hence, attention turns to Wednesday’s US Automatic Data Processing (ADP) Employment Change data, followed by the ISM Services PMI report.

Thursday will feature the European Central Bank (ECB) monetary policy announcements, which could have a EUR/GBP cross-driven “rub-off” effect on the Pound Sterling.

The all-important US NFP figure, alongside wage inflation data, will be published on Friday. The data will likely provide a fresh direction on the Fed’s interest rates and the US Dollar, eventually affecting the GBP/USD trades.

Besides the economic data releases, the focus will remain on speeches from Fed policymakers and Trump, having a significant market impact. The Fed enters its ‘blackout’ period on March 8 ahead of the March 18-19 policy meetings.