Sterling climbed to a six-month high against the dollar on Thursday as traders abandoned the U.S. currency after President Donald Trump’s expansive trade barriers stoked fears of a global slowdown in economic growth.
Trump said on Wednesday he would impose a 10% baseline tariff on all imports to the United States and higher duties on some of the country’s biggest trading partners, such as the European Union, China, India and Vietnam.
Britain, which was handed the least severe U.S. import tariff of 10%, said it believed a trade deal with the United States was close as it sought to soften the impact of Trump’s tariffs which threaten an escalating global trade war that would hurt its open economy.
British cars as well as steel and aluminium still face higher tariffs of 25% each.
The pound rallied 1.31% to $1.3181, hitting levels last seen in early October. Against the euro, however, the British currency fell to 84.04 pence per euro.
The dollar weakened across the board, with the index measuring it against six major peers dropping 1.8% at 101.94.
“We do share the optimism that the UK is probably closer to potentially agreeing a deal sooner with the U.S. to potentially lower that tariff rate further. So that’s certainly a positive potential catalyst for the pound,” said Lee Hardman, senior currency analyst at MUFG.
He added, however, that the pound tends to underperform during periods of risk.
“So that would be kind of a caveat which would kind of caution against basically building up long pound positions on the back of the potential for lower tariffs for the UK.”
Nicholas Rees, Head Of Macro Research at Monex Europe, also cautioned about British finance minister Rachel Reeves’s fiscal headroom becoming more constrained which could weigh on sterling.
“We think that all the fiscal headroom she (Reeves) rebuilt at the spring statement has now disappeared. We think she’s going to have to come back in the autumn and announce another set of either tax rises or spending cuts,” Rees said.
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