Pound Sterling Pares Gains Against Dollar, Euro as Trump Announces 25% Tariffs

January 21, 2025 - Written by David Woodsmith

STORY LINK Pound Sterling Pares Gains Against Dollar, Euro as Trump Announces 25% Tariffs

The Pound US Dollar exchange slumped on Tuesday following a tariff announcement from President Trump and the release of the UK’s latest jobs data.

At the time of writing, GBP/USD was trading at approximately $1.2245, down roughly 0.7% from the start of Tuesday’s session.

On Tuesday, the US Dollar (USD) gained significant strength against most of its major trading partners, rising by at least 0.7% against many of them.

The surge in USD was primarily driven by Donald Trump's latest tariff announcement, which came on his second day in office.

During his inauguration, Trump did not impose the wide-ranging tariffs that many had anticipated, causing the USD to weaken during Monday’s European trading session.

However, the tide turned when Trump announced a 25% tariff on both Canada and Mexico.

This move not only boosted USD exchange rates on Tuesday but also significantly undermined the Canadian Dollar (CAD) and the Mexican Peso (MXN).

On Tuesday, the Pound (GBP) saw some fluctuations against its major trading partners, declining against some currencies while holding steady against others, following the release of the UK's latest employment figures.

Instead of the anticipated stable unemployment rate, the UK witnessed a slight uptick in unemployment, which rose from 4.3% to 4.4% in November. This unexpected increase undermined Sterling.

However, the Pound received some support from the latest average earnings index (excluding bonuses), which showed that UK wage growth surpassed expectations. Wages grew from 5.2% to 5.6% in November, slightly above the forecast of 5.5%.

Looking ahead, the primary driver of movement for the Pound US Dollar exchange rate on Wednesday will likely be the market's reaction to Donald Trump's first few days in office.

With no significant economic data releases scheduled from either the UK or the US on Wednesday, any unexpected actions or announcements from the Trump administration could have a substantial impact on financial markets.

This could in turn introduce volatility into the GBP/USD exchange rate, as investors may react to new developments and adjust their positions accordingly.

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TAGS: Pound Dollar Forecasts