The Pound to Dollar News: GBP/USD Nears $1.25 as Trump’s Tariff Strategy Shifts

February 5, 2025 - Written by David Woodsmith

STORY LINK The Pound to Dollar News: GBP/USD Nears $1.25 as Trump’s Tariff Strategy Shifts

The Pound Dollar (GBP/USD) exchange rate edged higher on Tuesday as uncertainty surrounding Donald Trump’s shifting tariff policies rattled markets.

At the time of writing, GBP/USD was trading around $1.2497, 0.17% higher on the day's open.

The US Dollar (USD) remained highly reactive on Tuesday, continuing the turbulence seen at the start of the week as investors struggled to make sense of the latest trade developments.

Initially, USD exchange rates surged as Trump moved forward with new tariffs on Mexico, Canada, and China.

However, the Greenback quickly pulled back after the US president announced a last-minute agreement to delay tariffs on Mexico and Canada.

While this brought temporary relief to markets, any hopes for further de-escalation were dashed when Trump proceeded with new levies on Chinese imports.

In response, Beijing swiftly imposed its own retaliatory measures, fuelling concerns that the US-China trade war could intensify.

This ongoing uncertainty has left investors err on the side of caution. While a breakthrough in negotiations with China could see USD weaken, for now, safe-haven demand is keeping the ‘Greenback’ supported.

The Pound (GBP) struggled to find clear direction on Tuesday as traders held off on major moves ahead of the Bank of England’s (BoE) upcoming policy decision.

The central bank is widely expected to cut interest rates by 25 basis points when its first meeting of the year concludes on Thursday.

However, what remains uncertain is the BoE’s forward guidance. A more dovish tone from policymakers could see the Pound come under fresh selling pressure, while a hawkish stance may help limit Sterling’s downside.

In addition to ongoing developments in US trade policy, the next major driver of movement in the Pound to US Dollar exchange rate will likely be the latest ISM services PMI.

If January’s report shows continued strength in the US services sector, it could reinforce USD gains and bolster confidence in the US economy.

Further upside for the ‘Greenback’ may come from the latest ADP employment figures, should they indicate that the US labour market remains robust.

Meanwhile, the UK’s finalised services PMI could offer some near-term support to the Pound if the data exceeds forecasts.

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