GBPUSD - Will the dollar return to the bullish trajectory?!

US President Donald Trump has once again shown his mastery of political bluffs. He pushed negotiations with Mexico and Canada to the brink of crisis, there were numerous reports of increased tariffs and tougher measures, but in the end, he canceled everything. Instead, only a few symbolic measures were announced at the border, many of which had been discussed before. Now it seems that this scenario will be repeated again in the next 30 days.
That this was a bluff was predictable from the beginning, but it was a challenging experience for analysts and markets. If you didn’t have a moment of doubt during this process, you probably weren’t paying close enough attention. But that’s the Trump strategy: in the market you have to have a strong belief that you are on the right track. When everyone is panicking, you have to stay calm and watch the process from the outside. The trade war has caused significant volatility in financial markets, and it’s not easy to make a profit in this environment.
One of the main challenges was the timing. Last week, Trump announced that Mexico and Canada could do nothing to prevent the tariffs. But just days later, the two countries made almost no concessions and no tariffs were imposed.
The signs of a shift in direction were already clear. The most important sign was the comments of Kevin Hassett, the White House economic adviser, who indicated that the talks were changing direction. He shifted the focus of the discussion to the problem of drugs and fentanyl, a shift that indicated that the Trump administration was looking to declare a victory in the negotiations.
When even CNBC analysts noticed the change, it was clear that the direction of the talks had changed. “It doesn’t seem like you believe that these tariffs are going to happen, or that they will last very long,” one of the network’s hosts told Hassett in an interview.
How did the financial markets react? The currency market was one of the best indicators to understand developments. While the stock markets were volatile, the trends in Forex were more transparent and occurred without random disturbances.

The focus of attention on financial markets today is the Bank of England’s monetary policy decision. The Bank of England is expected to cut interest rates by 25 basis points, starting the new year. The decision will not come as a surprise, as OIS market data shows that traders have priced in a cut with a probability of around 92%. The cut will take the Bank of England’s policy rate to 4.50%, while policymakers continue to gradually reduce interest rates.
However, the most important part of the decision will be the central bank’s statement and tone. The results of the December vote showed that there is a division among BoE policymakers. Dhingra, Ramsden and Taylor had voted for a 25 basis point cut earlier in the same meeting.
The Bank of England continues to insist that “a gradual approach to removing monetary policy constraints remains appropriate.” This will remain the watchword for monetary policy today, even if interest rate cuts are implemented.
But economic uncertainties remain. The December inflation report showed that price pressures have eased, but the trend is not sustainable.
Analysts have made a few key points:
• The decline in inflation has been driven largely by falling service prices.
• But a closer look suggests that the decline may be temporary. Rob Wood of Pantheon Economics explained that the ONS’s calculation method has led to a drop in airline prices on December 10. The drop came before the Christmas break, when prices would normally have been expected to rise.
Overall, the disinflationary trend remains unsustainable. With core inflation still above 3%, the Bank of England remains committed to keeping price pressures in check.

Future Forecast:
• The Bank of England will cut interest rates today as expected, but will emphasize that future actions will depend on economic data.
• Traders do not expect interest rate cuts in February and March, but have forecast the next cut for May 2025.
• In total, interest rate cuts for 2025 are estimated at around 83 basis points.
Since the Bank of England is unlikely to make any clear commitments on the future course of its policies, the impact of this decision on the value of the pound and government bonds (Gilts) is expected to be limited.

The GBPUSD currency pair is located between the EMA200 and EMA50 on the 4-hour timeframe and is moving in its ascending channel. In case of a downward correction, the pair can be bought within the specified demand zone.