Rising equity markets signal a boost in global investor sentiment, aiding the Pound-to-Euro exchange rate's recovery to 1.17.

This rebound came after US President Donald Trump reversed his earlier threat to dismiss Federal Reserve Chair Jerome Powell, stating he had “no intention of firing him.”

On Monday, Trump rattled the markets with a harsh criticism of Fed Chair Jerome Powell, calling him a “loser” and accusing him of risking an economic downturn by keeping interest rates unchanged.

Adopting a more diplomatic approach on Tuesday, Trump told reporters that Powell could be “a little more active” in considering lower interest rates.

Meanwhile, US Treasury Secretary Scott Bessent made calming statements about China, calling the current tariff situation “unsustainable” and anticipating a de-escalation soon.

These remarks from Trump and Bessent signalled a coordinated effort to ease tensions, which was well-received by investors, Pound Sterling Live reports.

US equities fully recovered from Monday's dip, with major indices closing up between 2.51% (S&P 500) and 2.71% (Nasdaq).

The Dollar also rebounded against all major currencies, while the Euro weakened.

“The comments follow a sharp sell-off in the US Dollar and equity markets on Monday, on the financial uncertainty that a direct executive intervention into US monetary policy would cause,” stated Edward Bell, analyst at Emirates NBD.

In addition, the DXY dollar index hit a three-year low of 97.92 on Monday amid concerns that Trump's tariff policy and attacks on the Fed could harm the US economy.

This pushed the Pound-Dollar exchange rate to a seven-month high of 1.3423. However, it's the Euro-Dollar that has surged the most, reaching its highest level in over three years at 1.1572.

The stronger performance of EUR/USD compared to GBP/USD naturally leads to a decline in the GBP/EUR exchange rate.

As a result, the current 'sell America' trend is putting pressure on GBP/EUR. Once the 'sell America' trade fades, GBP/EUR is expected to recover, similar to the rebound seen after Trump's more conciliatory stance toward the Fed.

From a technical standpoint, EUR/USD is now significantly overvalued, and analysts are anticipating a pullback, which could support a recovery in GBP/EUR towards 1.1726, aligning with the current consolidation range.

However, some analysts believe this may just be a temporary pause in the Dollar's decline, suggesting that the Euro-Dollar rally could resume, which would likely put further pressure on the Pound.

“EUR-strength, renewed pressure on LT gilts and a global risk-off finally pushed EUR/GBP for a test of the 0.87 area. Sterling stays vulnerable,” according to Mathias Van der Jeugt, a KBC Bank analyst.