The British pound strengthened against the US dollar at the start of the week, supported by broad dollar weakness and shifting expectations around trade policy and UK monetary decisions. Sterling rose about 0.2 percent to trade near 1.3506 dollars, while also edging higher against the euro, as investors weighed global tariff developments and domestic political risks.
The move came after the US Supreme Court struck down key elements of President Donald Trump’s global tariff framework, a ruling that injected fresh uncertainty into international trade relations. Over the weekend, Trump announced plans for a new 15 percent levy on imports, increasing the previous 10 percent rate and signaling that trade tensions remain unresolved. For the United Kingdom, higher US import tariffs could affect export competitiveness and business sentiment, particularly for sectors with strong transatlantic exposure.
Currency markets responded with a softer dollar overall, helping sterling recover some recent losses. Traders remain cautious, however, as the broader implications of US trade adjustments are still unfolding. Analysts note that persistent tariff uncertainty may weigh on global growth prospects and influence capital flows between major economies.
Attention is also turning to the Bank of England, which left interest rates unchanged earlier this month after a closely split vote among policymakers. Money markets are currently pricing in roughly a 75 percent probability of a quarter point rate cut in March, reflecting signs of cooling economic momentum. Recent data showed the UK unemployment rate ticked higher in the fourth quarter, while inflation in January fell to its lowest level since March 2025.
Comments from Bank of England officials suggest that trade barriers could have long lasting effects on growth and inflation dynamics. Policymakers have indicated that the impact of elevated US import tariffs may take years to fully materialize. Investors will closely monitor Governor Andrew Bailey’s upcoming appearance before the parliamentary Treasury Committee for further guidance on the policy outlook.
Domestic political developments are also in focus. A special election in the Manchester Gorton and Denton constituency later this week is being viewed as a key test for Prime Minister Keir Starmer and the Labour Party. Poll volatility and controversy surrounding diplomatic appointments have added to political uncertainty, factors that can influence investor confidence and currency stability.
Market participants are assessing how these overlapping risks, including trade shifts, monetary policy expectations, and political dynamics, will shape sterling’s trajectory. While the pound has found near term support from dollar softness, the currency remains sensitive to both external shocks and domestic developments that could alter the balance of economic expectations in the months ahead.
