Sterling hovers at near four-year high

The British pound held steady around $1.371 on Tuesday, maintaining levels near its highest since October 2021, buoyed by the recent implementation of a new UK-US trade deal.

The agreement notably reduces tariffs on British car exports from 27.5% down to 10%, a significant relief for the UK’s automotive sector, while also eliminating duties on aerospace products such as engines and aircraft parts—key components of the country’s export economy. Despite these positive developments, a baseline 10% tariff on cars remains in place, and negotiations are still ongoing regarding zero tariffs for core steel products, leaving some uncertainty for steel exporters.

Meanwhile, economic data offered a mixed but generally stable picture for the UK economy. The Office for National Statistics confirmed that GDP growth for the first quarter stood at 0.7%, in line with earlier estimates, signaling modest but steady economic expansion amid a complex global backdrop.

The pound has continued to benefit from the Bank of England’s more hawkish stance relative to its peers, particularly the European Central Bank. The BoE has been reluctant to cut interest rates, largely due to persistently sticky inflation levels in the UK. Core inflation, which excludes volatile food and energy prices, has remained stubbornly elevated over the past year, heightening concerns among BoE officials and complicating any potential decisions to ease monetary policy.

On the other side of the Atlantic, the U.S. dollar weakened amid growing market focus on President Trump’s proposed tax and spending bill, which is currently under review in the Senate. The bill, which could potentially add $3.3 trillion to the national debt, has sparked concerns about fiscal discipline and raised questions about the Federal Reserve’s independence in managing monetary policy. This looming fiscal uncertainty has contributed to a softer dollar, as investors weigh the implications for inflation, interest rates, and overall economic stability in the world’s largest economy.

As the market continues to digest these developments, the interplay between trade agreements, monetary policy decisions, and fiscal outlooks remains central to currency movements and broader financial market sentiment.