The pound (GBP) fell below 1.2450 against the US dollar (USD) in the European session on Tuesday (28/1) after failing to break above the psychological resistance of 1.2500. GBP/USD fell sharply as the US dollar's ​​safe-haven appeal increased amid a gloomy market mood.

The US dollar index (DXY), which tracks the greenback against a basket of six major currencies, surged near 108.00 after a sharp sell-off in power companies, data centers and chatbot companies worldwide has boosted its safe-haven appeal. Global tech stocks plunged amid concerns that China's DeepSeek Artificial Intelligence (AI) model could disrupt global markets, given its performance on par with US chatbots such as OpenAI and Meta without relying on higher energy demand and advanced semiconductor chips.

Additionally, deepening tariff concerns by US President Donald Trump and uncertainty over the Federal Reserve's (Fed) monetary policy announcement on Wednesday acted as a boost for the US Dollar.

US Treasury Secretary Scott Bessent has proposed universal 2.5% tariffs and has also directed to raise them by the same amount every month, the Financial Times (FT) reported. Market participants expect that a gradual approach to tariff hikes would be beneficial for the US and other countries in negotiating a deal.

Meanwhile, the Fed is almost certain to announce a pause in its current easing policy and keep interest rates unchanged in the 4.25%-4.50% range on Wednesday. However, the Fed's monetary policy direction is expected to be slightly hawkish due to stubborn inflation prospects and stable labor demand. (AL)

Source: FXstreet