Pound Sterling Steadies Against Euro and Dollar, but Tariff Talk Injects Fresh Fear

February 25, 2025 - Written by Tim Boyer

STORY LINK Pound Sterling Steadies Against Euro and Dollar, but Tariff Talk Injects Fresh Fear

After sliding to 11-week lows early on Monday, the dollar index bounced back amid fresh concerns over US tariff policy with President Trump insisting that tariffs on Canada and Mexico would go ahead on March 4th.

US rhetoric on tariffs and Ukraine will remain key short-term market elements with further volatility inevitable amid multiple geo-political threats.

Rabobank commented, “we have a stackable series of binary geopolitical scenarios with starkly different economic and market implications.”

The Pound to Dollar (GBP/USD) exchange rate failed to hold 2-month highs near 1.2700 and retreated to 1.2625 in early Europe on Tuesday.

The Pound will tend to be vulnerable if fear dominates.

According to ING, “We expect a return below 1.25 in GBP/USD in March.”

There is likely to be near-term dollar gains if the tariffs go ahead, but markets will also be wary over a last-minute deal.

MUFG commented; “The next couple of months is set up to be pivotal for US dollar performance. The US dollar should bounce back strongly in Q2 if Trump follows through and implements some of these more disruptive tariffs. It would likely trigger a pick-up in FX market volatility as well that has eased back at the start of this year.”

It added, “As such, we still believe it is premature to drop our forecasts for a stronger US dollar, which could just be delayed.”

According to National Australia Bank head of FX strategy Ray Attrill; “Heading towards these key tariff deadlines, it's hard to see a significant recovery in risk sentiment and that's going to keep defensive support for the U.S. dollar in place.”

MUFG, however, also pointed to alternative scenarios and noted; “In contrast, if all of Trump’s tariff threats are watered down significantly and trade deals emerge including one with China then the door would open for a deeper correction lower for the USD.”

US economic developments will also be monitored closely given concerns that US Administration polices to trim government jobs will undermine confidence.

Danske Bank commented, “We doubt DOGE's federal worker layoffs will tilt the economy into a recession as overall fiscal policy stance is set to remain expansionary over the medium term.”

Chris Weston, head of research at Pepperstone did note the importance of forthcoming data; "With U.S. growth concerns building traction, the market's reaction function is now heavily skewed to any downside in the data outcomes.”

The latest consumer confidence data will be released later Tuesday with expectations of a limited decline. A sharp dip in confidence would trigger increased reservations over the outlook.

Domestically, Bank of England MPC member Dhingra maintained a dovish stance towards interest rates.

According to Dhingra, monetary policy is already at a high level of restrictiveness and medium-term inflation pressures are easing.

She noted differences of opinion on the MPC and her view is that demand is generally weak with subdued consumer spending. Other members consider that a lack of supply will maintain inflation pressure in the economy and prevent fast rate cuts.

Comments from swing voters on the committee will continue to be monitored closely.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts