At the start of 2025, the US dollar fell against several global currencies, including the British pound and the Canadian dollar. Despite the sharp decline in the dollar in recent months, it seems that the trend may begin to turn as the dollar loses its momentum in the market. However, there are uncertain geopolitical risks, especially regarding US President Donald Trump’s trade policies, which may affect this outlook.
Key Events Affecting Forex Markets
Economic events that will affect the Forex market outlook this week include changes in UK labor market data, which is measured by the claims report. Traders will also be watching the UK Consumer Price Index on Wednesday, which will have a significant impact on the Bank of England’s monetary policy. Additionally, manufacturing and services PMI data will be released on Friday.
For GBP/USD, recent data has shown a slight improvement in labor market conditions, but UK inflation remains a concern. This is an indication that the pound may continue to face some challenges, but at the same time, the limited economic improvement may contribute to its upward trend, despite the political and economic risks that may hinder it.
USD/CAD Fundamentals
For the USD/CAD pair, data shows that it reached its highest level since February 2025 at 1.4793. However, the upward momentum in the dollar seems to have started to wane after the easing of trade tensions between the United States and Canada. These factors contribute to the decline in the strength of the US dollar against the Canadian dollar. At the same time, there are ongoing concerns that US economic policies may shift towards a more hawkish stance, which may reverse the upward trend in the future.
GBP/USD Technical Analysis
The US President’s statements, which indicate his aspirations to integrate Canada into the United States, are creating some tension in the political and economic arena. As for this pair, the economic data coming from Canada, such as the Consumer Price Index, will be pivotal in understanding the direction of the Canadian currency in the coming days.
On the three-day time frame, the Relative Strength Index (RSI) is showing an inverted head and shoulders pattern below the neutral zone at 50. This indicates that the pair’s upward momentum is likely to continue, especially if it manages to break the resistance level at 1.2630. Such a break could push the RSI towards the 60 area and boost the pair’s moves to the next resistance level at 1.28.
If the 1.28 barrier is broken, the move is likely to extend to the 1.2950 level, where it aligns with the 0.618 Fibonacci retracement level. This indicates that the uptrend is likely to continue.
Downside Risks
On the other hand, if the GBP/USD pair drops below the 1.25 level, the gains could be reversed, which some may see as the beginning of a larger downside move. This could lead the price to drop to the 1.2360 and 1.2280 levels, with the possibility of reaching the last support level at 1.21, a barrier that could significantly affect the overall direction of the currency in the future.
USD/CAD Technical Analysis
On the same time frame, the USD/CAD pair is retesting the 0.236 Fibonacci retracement level after the impulse wave between May 2021 and January 2025. The data shows that this pair is approaching the 1.4150 area, a pivotal point in determining its future direction. If it closes below this level, the price could head towards the 1.40 area.
The impact of monetary policy and political statements on the dollar
On the other hand, if the pair continues to stabilize above 1.4150, it may face resistance at 1.4520 and 1.4680. A close above 1.4680 should lead to further gains, meaning the dollar may strengthen against the Canadian dollar.
Expectations related to US monetary policy will continue to play a major role in determining the direction of the dollar in global markets. Investors are closely watching the statements of the members of the Federal Open Market Committee, as these statements may indicate the continuation of raising interest rates, which strengthens the dollar.
President Trump’s policies, especially regarding trade wars and pressure on other economies, may also directly affect the dollar’s outlook. Continued pressure on the global economy through the tariff policy may contribute to slowing the growth of the US economy, which may lead to a decline in the strength of the dollar in the long term.
Future expectations for dollar prices
The US dollar price will likely continue to fluctuate, influenced by inflation and the monetary policies the US Federal Reserve pursues. Expectations also indicate that some economic movements may lead to further pressure on the dollar against other currencies.
Based on these expectations, investors are awaiting the upcoming economic data that will determine whether the dollar will remain strong or face new challenges in the coming period. However, political and economic developments, especially related to trade wars and monetary policies, continue to play a decisive role in shaping the future direction of currencies.
The market outlook for the GBP/USD and USD/CAD pairs continues to improve as the US dollar’s upward momentum declines in the current period. With the impact of US economic policies and geopolitical risks, investors remain in anticipation of entering more stable phases in the markets.
