(Bloomberg) — The pound is emerging as an unlikely haven from the global financial market jitters over US President Donald Trump’s trade tariffs.
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Sterling gained against a broadly stronger US dollar Monday despite shaky global risk sentiment that typically sends the UK currency lower. It’s set to rise for an eighth session against the euro, the longest streak since 2021.
The moves, following a poor start to the year for UK markets, were triggered by Trump appearing to spare the nation from the threat of immediate tariffs as he said the trading relationship was “out of line” but “can be worked out.” Meanwhile, the UK is rebuilding its relationship with the European Union, potentially easing years of Brexit-related trade barriers.
“The pound is outperforming because the Trump administration has left the UK off the tariff hook,” said Elias Haddad, a strategist at Brown Brothers Harriman. “Warmer UK-EU relations can lead to a more favorable UK business investment outlook, which bodes well for sterling and UK financial markets.”
Trump’s move to invoke emergency tariffs on Canada, Mexico and China rattled global investors, sending stocks lower and the dollar surging. The greenback later retraced some of its gains after Mexican President Claudia Sheinbaum said US tariffs on her country would be delayed for one month after a conversation with Trump, showcasing how volatile trading a rapidly-evolving trade landscape will be for investors.
Yet even before Trump’s latest tariff announcements, sterling bulls pointed to the UK’s services-focused economy as leaving the nation less exposed if a trade war materialized. Now UK-US relations seem to be cordial: Trump said Sunday he was “getting along very well” with UK Prime Minister Keir Starmer, whom he described as “very nice.”
By contrast, Trump said tariffs “will definitely happen” between the US and the European Union, citing a large trade deficit with the bloc. Sterling strengthened 0.6% versus the euro to around 83 pence.
“Tariffs remains the number one global issue, but we continue to believe that the UK will avoid some of the worst excesses that await the rest of Europe,” said Kamal Sharma, a FX strategist at Bank of America Corp. He expects the pound to strengthen to 80 pence per euro by year-end.