The British pound climbed above $1.333 on Tuesday, reaching its highest level in a week, primarily supported by broad-based weakness in the US dollar.
Sterling strengthens to one-week high
The greenback retreated following reports of ongoing currency discussions between the US and South Korea, which stirred speculation that the Trump administration could shift its trade focus toward exchange rate dynamics. Market participants interpreted the news as a potential signal that Washington might tolerate—or even favor—a weaker dollar in upcoming trade negotiations, contributing to the greenback’s softness against major peers.
The talks between US and South Korean officials centered on foreign exchange practices and transparency, and the agreement to continue dialogue fueled expectations that currency-related issues might gain prominence in broader trade discussions, particularly amid the evolving geopolitical landscape in the Asia-Pacific region. This narrative added to the bearish sentiment surrounding the US dollar, giving the pound additional upward momentum despite lingering concerns over the UK’s domestic economy.
On the domestic front, investor attention also turned to fresh comments from Bank of England officials, which offered mixed signals regarding the central bank’s policy outlook. Deputy Governor Sarah Breeden highlighted the importance of implementing long-term reforms to the bond market to enhance its resilience and transparency, a move seen as critical for ensuring financial stability in the post-Brexit era. Meanwhile, MPC member Catherine Mann took a more cautious stance on further monetary easing, stressing the need to see clearer and more consistent signs of waning corporate pricing power before supporting additional interest rate cuts. Her remarks suggested a reluctance among some policymakers to rush into more aggressive easing without firmer evidence that inflationary pressures are subsiding.
Latest labor market data paint a somber picture
In the macroeconomic backdrop, the latest labor market data painted a somber picture, with the UK unemployment rate rising to 4.5% in April, the highest since 2021, reflecting the continued drag from sluggish economic activity and weak consumer demand. Wage growth also decelerated, adding to concerns about the durability of household spending, which has already been under pressure from elevated living costs and rising credit burdens.
These developments slightly reinforced market expectations that the Bank of England could opt for further easing in the months ahead, especially after last week’s 25 basis point rate cut, which was delivered amid a divided vote by policymakers. Traders are now increasingly pricing in the possibility of at least one more rate reduction before year-end, although the path remains contingent on upcoming data and the evolution of global financial conditions.
Overall, the pound’s near-term direction is expected to remain sensitive to shifts in US dollar sentiment, central bank commentary, and key domestic data releases, while broader geopolitical developments, particularly around trade and currency issues, continue to exert an outsized influence on FX markets.
