Pound to Dollar Rate Jumps as Trump Tariffs Fail to Support USD

March 4, 2025 - Written by Frank Davies

STORY LINK Pound to Dollar Rate Jumps as Trump Tariffs Fail to Support USD

Overnight, President Trump followed through with his threat and imposed 25% tariffs on Canada and Mexico as well as increasing tariffs on China.

There had been expectations that the dollar would gain ground if tariffs were imposed, but the currency has lost ground and overall currency moves have been contained.

The Canadian dollar and Mexican Peso, for example, have also pared losses while the Euro has also gained with EUR/USD trading above the 1.05 level.

The Pound to Dollar (GBP/USD) exchange rate has strengthened to 10-week highs at 1.2735 after the European open.

According to UoB; “The increase in momentum indicates further upside risk, but to rise in a sustained manner, GBP must break and remain above 1.2730.”

ING commented on the market reaction; “Surprisingly, the FX market reaction has been subdued, largely because soft US economic activity is undermining the dollar.

It added; “Tariffs are dollar positive, an equity correction is not.”

In this context, it added; “Where the dollar trades near term may be a function of what happens to US equity markets.”

Danske Bank noted; “To put things further into perspective, most US indices are lower for the year, while major European indices are up double digits, and the Hang Seng is nearly 15% higher year-to-date.”

MUFG notes that Trump is redefining the global trade system and added; “It is one reason why we remain reluctant to drop our call for a stronger US dollar even after weakness at the start of this year.”

It still added a caveat in light of recent developments; “However, our updated forecasts were pared back to reflect less upside potential for the US dollar to better reflect recent weakness in the US economy at the start of this year.”

According to Danske Bank; “Markets remain nervous about weaker macro data signals.”

It added; “Friday’s US jobs report will be pivotal, with weaker data putting pressure on the USD.”

MUFG added; “Rising optimism over a ceasefire deal in Ukraine and a significant step up in government spending in Europe has also helped to provide more support for European currencies at the start of this year helping to dampen upside potential for the US dollar.”

The bank has dropped its forecast that GBP/USD will slide below the 1.2000 level.

ING summarised its position; “Ultimately, we still think the dollar will broadly strengthen in the first half of the year, but it's going to be a bumpy ride.”

Geo-political developments have dominated, but Bank of England policy will still be a key element for the Pound.

According to MUFG; “We had previously assumed back-to-back rate cuts in May and June by the BoE but the data in February and the added reference to the MPC needing to be “careful” in removing monetary accommodation has led us to assume a slower pace of monetary easing this year.”

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TAGS: Pound Dollar Forecasts