GBP/USD struggles near 1.2350 as Trump's tariff hikes proposal remains afloat

• GBP/USD inched lower as Trump confirmed that the universal tariff hikes proposal remains afloat.
• US President Donald Trump issued a memorandum instructing federal agencies to investigate and address ongoing trade deficits.
• The latest UK labor market report provides the BoE with a "green light to cut in February."

GBP/USD pauses its two-day rally, trading around 1.2330 during the Asian session on Wednesday. The pair remains subdued as the US Dollar (USD) holds onto modest gains. US President Donald Trump confirmed that the proposal for universal tariff hikes is still under consideration, although he stated, "We are not ready for that yet." Additionally, Trump issued a memorandum directing federal agencies to investigate and address the ongoing trade deficits.

The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, holds ground around 108.00 at the time of writing. However, the Greenback faced headwinds as Trump opted not to impose new tariffs on his first day in office.

However, the USD could recover its recent losses in the near term as the US Federal Reserve (Fed) is expected to maintain its benchmark overnight rate in the 4.25%-4.50% range during its January meeting. Investors anticipate that Trump's policies could increase inflationary pressures, which might limit the Fed to only one more rate cut.

The Pound Sterling (GBP) came under pressure after the release of labor market data from the United Kingdom (UK) on Tuesday. The ILO Unemployment Rate unexpectedly rose to 4.4%, along with the sharpest drop in payroll numbers since November 2020, signaling a potential weakening in the labor market.

Following the labor market report, analysts at Nomura noted that this data provides the BoE with a "green light to cut in February." Markets are also betting on one or two more reductions after February.

Last week's data pointed to an unforeseen slowdown in inflation and weaker-than-expected economic growth. As a result, the Bank of England (BoE) is widely anticipated to lower the key interest rate by 25 basis points to 4.5% during its policy meeting on February 6.