GBP/USD Forecast: Pound Sterling Advances as Dollar Falters on Tariff Threats

Modified: Tuesday, 20 January 2026 20:31 BST - Written by Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Advances as Dollar Falters on Tariff Threats

The Pound to US Dollar exchange rate (GBP/USD) pushed higher on Tuesday, touching a one-week peak amid escalating tariff concerns linked to Greenland and a mixed UK labour market report.

At the time of writing, GBP/USD was trading at $1.3450, up approximately 0.2% on the session, although it had slipped back slightly from earlier highs.

The US Dollar (USD) struggled to find support as renewed tariff warnings from President Donald Trump weighed on the American currency.

Trump signalled his intention to impose new trade levies on eight European countries opposing his proposed acquisition of Greenland, sharpening tensions between the US and several long-standing allies.

The prospect of a broader US-EU trade dispute unsettled markets, with investors increasingly uneasy about the potential drag on US growth and the risk that European governments could curb their holdings of US Treasuries.

These concerns lingered into the session as Trump doubled down on his position, brushing aside diplomatic criticism from European leaders and keeping the ‘Greenback’ under pressure.

Meanwhile, the Pound (GBP) advanced against the US Dollar as markets took a broadly constructive view of the UK’s latest labour market data, despite the figures offering a mixed picture.

Employment rose by 82,000 in the three months to November, comfortably beating expectations for a 27,000 increase. However, the unemployment rate remained stuck at a multi-year high of 5.1%.

Wage growth continued to cool, although pay increases still outpaced inflation.

Taken together, the data proved sufficient to underpin Sterling on Tuesday, allowing the Pound to gain ground against a weaker US Dollar.

GBP/USD Outlook: UK Inflation Data in Focus

Looking ahead, attention is likely to turn to the UK’s forthcoming consumer price index release, which could shape near-term direction in the Pound to US Dollar exchange rate.

Markets expect headline inflation to have edged higher in December, rising from 3.2% to 3.3%, while core inflation is forecast to have held steady at 3.2%.

If inflation proves stubborn, traders may scale back expectations for a near-term Bank of England rate cut, potentially offering Sterling further support. Conversely, any downside surprise could revive dovish expectations and place the Pound under renewed pressure.

For the US Dollar, the data calendar remains light, leaving USD sentiment closely tied to political developments.

Continued focus on President Trump’s tariff threats and rhetoric surrounding Greenland may sustain a broader ‘sell-America’ tone, keeping the ‘Greenback’ on the defensive.

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TAGS: Pound Dollar Forecasts