One of the largest banks in Australia believes the Australian Dollar could strengthen against the Pound as Trump is expected to impose tariffs on the UK over its VAT charges.

Indeed, Commonwealth Bank of Australia has acknowledged that the Australian Dollar is currently “weaker than we had expected at this point,” but anticipates a decline in the strength of European currencies, which have had a strong start to 2025.

“We expect optimism around European defence spending to moderate, supporting AUD/GBP,” according to Kristina Clifton, Senior Currency Strategist at Commonwealth Bank of Australia.

The Australian Dollar has dropped by 3.0% against the Pound in 2025, with the Pound-to-Australian Dollar exchange rate (GBP/AUD) increasing from 1.9957 to 2.0545.

As a result, the AUD/GBP rate has fallen from 0.5010 to 0.4867.

This outlook comes ahead of the upcoming key event for global foreign exchange, the White House's tariff announcements scheduled for 2^nd April, Pound Sterling Live reports.

President Donald Trump is preparing to announce a series of “reciprocal tariffs” aimed at counteracting tariffs imposed on US imports by other countries.

Importantly, the US will also apply these tariffs to 'non-trade tariffs' like value added tax. This means that nations, including the UK, which levy this sales tax, will also be subject to these tariffs.

In addition, Commonwealth Bank believes the upcoming tariff announcements will have a more negative impact on the UK than on Australia, which could provide additional support for the AUD/GBP exchange rate.

Examining trade figures, around 15% of the UK’s exports are directed to the US, whereas Australia exports only about 5% of its goods to the US.

“If value added taxes are counted as reciprocal tariffs, the UK can also face more negative direct impacts than Australia because its VAT rate of 20% is much higher than Australia’s 10% goods and services tax (GST),” Clifton went on to say.