The Impact of Trump’s Trade War on Central Banks Policies

The Federal Reserve Acknowledges Tariff’s Effect

As expected, the Federal Reserve left interest rates unchanged at its latest meeting. However, what stood out was Chairman Jerome Powell’s attempt to ease market concerns, especially after revising US growth forecasts downward from 2.1% to 1.7% for the year. Powell acknowledged early signs of an economic slowdown due to Trump’s tariffs and government spending cuts but downplayed their long-term significance, calling the downturn “transitory” a term he previously used to describe inflation spikes two years ago.

Despite these concerns, the Federal Reserve maintained its interest rates outlook, keeping the possibility of only two rate cuts this year in its dot plot projections unchanged.

The Bank of England Remains Cautious

Markets now turn to the Bank of England’s interest rate decision, with expectations of rates remaining steady at 4.5%. Investors will closely watch the voting split among policymakers, as members remain divided between advocating for cuts and maintaining the current stance.

UK inflation reached 3% in January, driven by rising food and energy costs, while core inflation stood at 3.7%. Given this data, the Bank of England is likely to take a measured approach, assessing the economic impact of President Trump’s impending tariffs before making policy changes. Any rate cut in May is expected to be modest—around 25 basis points—followed by one or two additional cuts later in the year, depending on inflation trends, particularly within the services sector.

GBP/USD Price – Testing Multi-Month Highs

The GBP/USD pair has been in an uptrend since late January, consistently forming higher highs and higher lows. Today, the pair overtook the 1.3000 level, marking its highest point since last November. Currently, the pair is trading within the zone located between 1.2990 and 1.3173. Sustained movement above the low end of this zone suggests a potential continuation toward its high end.

Key Levels in the Bearish Scenario

A daily close below the low end of the mentioned zone of 1.2990 would signal weakening bullish momentum, potentially leading to a decline toward 1.2775. Further downside pressure could drive the pair to corrected even lower toward 1.2548. In this scenario, the support level at 1.2706 should be monitored closely.

GBP/USD price – Daily Chart

Chart Source: ADSS Platform