The British pound climbed past $1.30, moving closer to a six-month high of $1.31 on April 3, after UK GDP surprised to the upside with 0.5% growth in February—five times the expected pace.
Sterling strengthens toward six-month high
This unexpected growth provided a much-needed boost for the pound, which had been under pressure in recent months. All major sectors contributed to the better-than-expected performance, with stronger factory output particularly notable. Analysts pointed to the possibility that stockpiling ahead of President Trump’s aggressive new tariff measures may have played a role in the industrial surge, as businesses anticipated disruptions from the escalating trade war. The solid economic data also helped lift investor sentiment, leading traders to slightly reduce their expectations for rapid rate cuts from the Bank of England. However, despite the upbeat numbers, markets are still pricing in three quarter-point rate cuts for 2025, suggesting concerns over the longer-term economic outlook persist.
Sterling also benefited from a softer dollar
Sterling also benefited from a softer dollar, as investors reacted to the intensifying US-China trade war, which has resulted in heightened uncertainty for global markets. The announcement from China’s finance ministry that it will raise tariffs on US goods to 125% further escalated the trade conflict, following a week of retaliatory moves between the two nations. In response, the US now has a combined tariff burden on Chinese imports totaling 145%, including the 125% import duty and an additional 20% fentanyl-related levy. The broader market reaction has been one of caution, with investors pulling back from riskier assets and seeking safer havens, which has put pressure on the dollar while providing a lift to currencies like the pound.
As the trade war continues to unfold, the pound's strength will likely be influenced by both domestic economic data and external factors, such as global trade tensions and the trajectory of US monetary policy. While the UK's recent GDP figures offer a positive signal, there are still concerns about how Brexit-related uncertainties and the broader global economic slowdown may affect the UK economy. However, for now, the pound seems to be benefiting from a combination of favorable economic news and a weaker dollar, with traders cautiously optimistic about the near-term outlook for the currency.
