The British pound surged to $1.3, its highest level in approximately six months, as it benefitted from a sharp decline in the US dollar. This movement was triggered by traders reacting to the latest round of reciprocal tariffs announced by President Donald Trump, which raised concerns about global trade and economic stability.
Pound soars to six-month high
The US is set to impose a 10% tariff on all imports, with significantly higher rates for certain countries, including a 54% tariff on Chinese goods. UK imports will be subject to the 10% tariff, which has sparked worries about the broader implications for global trade flows.
The announcement led to a flight to safety, as investors sought refuge in perceived less risky assets, shifting toward assets such as the British pound, which was viewed as more stable in comparison to the US dollar amid the uncertainty. In response to these developments, UK Prime Minister Keir Starmer addressed the nation, calling for the UK to respond with "cool and calm heads" in the face of the escalating trade tensions. He acknowledged that President Trump’s actions were in the interest of the US but emphasized that the UK would take steps to safeguard its own economic interests moving forward.
BoE expected to cut rates
Amid these events, financial markets have started to price in an increased probability of rate cuts by the Bank of England. Expectations for a reduction in the Bank Rate have risen, with markets now pricing in approximately 62 basis points of cuts by December, up from about 54 basis points just the day before. This shift reflects growing concerns that escalating trade tensions and the broader economic impact of tariffs could put additional pressure on the UK economy, prompting the Bank of England to adjust its policy stance to support growth.
