Sterling strengthens for the third straight session

The British pound rose to $1.277 on Thursday, extending its gains for the third consecutive session, as the U.S. dollar weakened amidst confusion surrounding U.S. trade policy.

Sterling strengthens for the third straight session

The rally came after U.S. President Donald Trump announced a 90-day pause on the imposition of new tariffs for most countries, though he also raised tariffs on Chinese imports to 125%. This shift reduced the immediate threat of a full-blown global trade war, but the escalation in U.S.-China tensions kept risk premiums elevated, especially as markets continue to grapple with the uncertainty surrounding the future of trade relations. The announcement provided temporary relief to global markets, but volatility remains high as investors struggle to anticipate the next steps in the ongoing trade dispute. The weakening of the U.S. dollar amid these geopolitical developments has helped buoy the British pound, which had been under pressure in recent months due to domestic economic concerns and the broader global uncertainty. Meanwhile, market participants have adjusted their expectations for U.K. interest rates, with bets on a potential Bank of England rate cut this year easing slightly. The probability of a rate cut has been scaled back, with markets now pricing in just 66 basis points of easing by year-end, compared to 79 basis points a day earlier. This shift reflects a more balanced outlook on U.K. monetary policy, following mixed economic data that has kept expectations for an immediate rate cut in check.

U.K. economic performance has shown signs of stabilization

In the background, the U.K.'s economic performance has shown signs of stabilization. The country’s GDP is expected to have edged up by 0.1% in February, marking a modest rebound after previous contractions. While the growth figure is far from robust, it suggests that the British economy may be avoiding the sharp slowdown many had feared, particularly given the backdrop of Brexit uncertainties and global trade challenges. Analysts are looking to the upcoming economic data for signs of whether the U.K. can maintain this mild recovery or if external risks, including Brexit and the ongoing trade tensions, will weigh more heavily on growth in the coming months. With trade and economic concerns continuing to shape sentiment, traders will be closely monitoring developments in both the U.S. and U.K. as they reassess their outlook for future interest rate decisions and global market conditions.