The British pound hovered around $1.30, not far from the six-month high reached last week, supported by broad-based dollar weakness as markets reacted to escalating trade tensions.
British pound nears six-month high
The pound benefitted from investor sentiment shifting away from the dollar, which has been under pressure amid growing concerns over a potential global economic slowdown. On Friday, China unveiled retaliatory measures, imposing 34% tariffs on a wide range of U.S. goods, further intensifying the ongoing trade war. This escalation weighed heavily on global markets, with concerns rising that the prolonged dispute could exacerbate economic uncertainties worldwide.
At the same time, President Donald Trump downplayed concerns over inflation and the possibility of a U.S. recession, maintaining a confident stance on the economic outlook despite the mounting trade challenges. His remarks, however, did little to calm global markets, with many analysts forecasting that the impact of the tariffs would eventually spill over into slower growth and higher costs for both consumers and businesses.
Internal factors impacting the sterling
In the UK, Prime Minister Keir Starmer made it clear that his government would work to shield Britain from the fallout of Trump’s intensifying trade wars. Acknowledging the risks posed by the escalating tensions, Starmer promised to prioritize the protection of British industries and maintain the country’s position in global trade. His remarks were seen as a reassurance to markets that Britain would actively manage its trade relations, even as broader economic risks loomed large.
Meanwhile, growing fears of a global economic recession led investors to shift their focus to monetary policy adjustments. As a result, expectations for interest rate cuts, particularly from the Bank of England, have increased. Markets are now pricing in roughly 85 basis points of rate reductions by the Bank of England this year, up from 52 basis points before the latest U.S. tariff announcement. A rate cut in May is now fully priced in, with many speculating that the central bank may be forced to act swiftly to cushion the UK economy from the adverse effects of the global trade turmoil. The likelihood of further cuts later in the year is also being priced into the market, as investors brace for a potential slowdown in economic activity both in the UK and globally.
