GBP/USD drops below 1.2500 due to dovish BoE, Trump tariff plans

• GBP/USD depreciates as the BoE is widely anticipated to deliver a 25 basis point rate cut in February.
• The US Dollar rises as President Trump plans to impose tariffs on imports of multiple products.
• Trump stated that he wants “bigger tariffs” than “2.5% universal tariffs on US imports,” proposed by Treasury Secretary Scott Bessent.

The GBP/USD pair halts its three-day winning streak as the British Pound (GBP) faces headwinds due to growing market expectations of a near-certain rate cut by the Bank of England (BoE) to 4.5% at its upcoming meeting. During Tuesday's Asian session, the pair trades around 1.2440.

Soft economic data from the United Kingdom (UK)—including weaker inflation, retail sales, labor market figures, and sluggish GDP growth in December—has strengthened the case for a 25 basis point rate cut by the BoE in February.

Meanwhile, the US Dollar Index (DXY), which measures the US Dollar (USD) against a basket of six major currencies, hovers near 108.00. Market participants are likely to monitor key US economic releases later in the day, including Durable Goods Orders, the Conference Board’s Consumer Confidence Index, and the Richmond Fed Manufacturing Index.

The US Dollar has gained traction following President Donald Trump’s tariff announcements on Monday evening. Trump proposed tariffs on imports of computer chips, pharmaceuticals, steel, aluminum, and copper to encourage domestic manufacturing.

Treasury Secretary Scott Bessent also proposed introducing universal tariffs on US imports, starting at 2.5%. However, Trump stated he favors “much bigger” tariffs than the initial proposal.

Uncertainty surrounding the economic implications of Trump’s trade and immigration policies has prompted the Federal Reserve (Fed) to adopt a cautious approach ahead of its policy decision on Wednesday, which could lend additional support to the Greenback.