GBP/USD falls below 1.2300 following Trump tariff's threats

• GBP/USD depreciates around 1% amid US President Donald Trump's tariff threats against China, Canada, and Mexico.
• US announced plans to impose a 25% tariff on Canadian and Mexican goods, while China will face a 10% tariff.
• The British Pound struggles as the BoE is widely anticipated to deliver a 25 basis point rate cut in February.

GBP/USD continues its decline for the fifth consecutive session, hovering around 1.2270 during Monday's Asian trading hours. The pair has weakened by around 1% as the US Dollar Index (DXY), which measures the US Dollar (USD) against six major peers, gains strength following US President Donald Trump's tariff threats against China, Canada, and Mexico.

On Saturday, the US informed that it would impose 25% tariffs on Canadian and Mexican goods, while Chinese exports would face a 10% tariff. Additionally, Canadian energy exports will be subject to a 10% tariff, according to CTV. These tariffs are set to take effect on Tuesday and will remain in place until the fentanyl overdose crisis is "sorted." In response, Canada, Mexico, and China have pledged retaliatory measures against the sweeping new trade restrictions.

Meanwhile, US inflation data reinforced the Federal Reserve's (Fed) hawkish stance on the monetary policy outlook. The Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, rose 0.3% MoM in December, up from 0.1% in November. On an annual basis, PCE inflation accelerated to 2.6% from the previous 2.4%, while core PCE, which excludes food and energy, remained steady at 2.8% YoY for the third straight month.

The Pound Sterling (GBP) faces additional downside risks as traders anticipate the Bank of England (BoE) will restart its policy-easing cycle, likely cutting interest rates by 25 basis points (bps) to 4.5% in February. Investors are closely watching the BoE's monetary policy decision next Thursday, with expectations that policymakers may adopt a dovish stance, given recent signs of slowing inflation, despite continued wage growth acceleration.