The Pound gained slightly against the Dollar on Tuesday as investors anticipated that a deal between the UK and the US could mitigate the potential negative economic effects of the US tariffs that President Donald Trump is set to announce on 2nd April.
Prime Minister Keir Starmer stated that negotiations with the US on a trade agreement aimed at helping Britain avoid the impact of Trump's import tariffs were “well advanced.”
The greenback edged higher as analysts kept an eye on the upcoming US Job Openings and Labor Turnover Survey (JOLTS) and the ISM manufacturing index, both of which could offer more insights into how uncertainty surrounding US trade policy is impacting the economy, Reuters reports.
Sterling gained 0.05% against the Dollar, rising to $1.2924, after reaching $1.3014 on 20th March, its highest level since 6th November.
It fell against the Yen, which investors consider a safer asset in the current environment, as potential US tariffs are expected to negatively impact the US economy as well. It was down 0.15%, trading at 193.40 against the Japanese currency.
Among major developed market currencies (G10), the Pound is generally more volatile and reactive to risk sentiment compared to traditional safe havens such as the Japanese Yen, Swiss Franc, or the US Dollar.
“Our sense is that the UK escapes the worst excesses of tariffs, largely due to a relatively benign trade position with the US,” said Kamal Sharma, forex strategist at BofA.
“That should be Pound supportive, but the global context matters – a risk-off fallout in markets will weigh on all currencies versus the US Dollar,” he added.
Money markets slightly raised their expectations for future Bank of England rate cuts, fully pricing in a 25-basis point move by June and 54 basis points by the end of the year, up from 51 basis points the previous day.
Meanwhile, the Euro fell 0.05% to 83.66 pence as the European Union prepares for a potential trade war.
European Commission President Ursula von der Leyen stated on Tuesday that the EU would be prepared to respond to US trade tariffs with strong countermeasures if necessary.