Sterling Soars as Trump Tariffs Trigger US Recession Fears, UK Spared the Worst

The Pound Sterling (GBP) surged to a near six-month high against the US Dollar (USD) on Thursday, breaching the 1.3200 mark, as President Donald Trump’s unexpectedly aggressive tariffs sent shockwaves through the global markets, igniting fears of a looming US recession. The dramatic rise in the GBP/USD pair was fueled by a sharp decline in the US Dollar Index (DXY), which plummeted to approximately 101.35, reflecting the market’s growing apprehension about the economic fallout from the newly imposed levies.

President Trump’s announcement of a 10% baseline tariff on all imports, coupled with additional targeted levies on key trading partners, significantly exceeded market expectations. The potential for retaliatory measures from affected nations further intensified concerns about a full-blown trade war. Market participants now widely anticipate that the implementation of these tariffs could precipitate a US economic downturn, compelling the Federal Reserve (Fed) to pursue further interest rate cuts despite the inflationary pressures inherent in higher import costs. Even Stephen Miran, Chair of the US Council of Economic Advisers, acknowledged the potential for “short-term bumps” in the economy, though he maintained the administration’s focus on long-term economic restructuring.

Adding to the dollar’s woes, the US ISM Services PMI for March fell significantly short of expectations, registering at 50.8 compared to the forecasted 53.0. This weaker-than-anticipated data further solidified concerns about a slowdown in the US economy.

Amidst the global market turmoil, the Pound Sterling exhibited a mixed performance against other major currencies, but notably strengthened against the USD. The UK received a comparatively lenient 10% tariff from the US, the lowest amongst its trading partners. However, this does not eliminate the potential economic impact. UK businesses will still face heightened competition in the global market as companies from nations subjected to higher US tariffs are forced to lower prices to remain competitive.

In a departure from the expected retaliatory responses from other nations, the UK appears unlikely to engage in a trade war with the US. Prime Minister Keir Starmer, prior to the tariff announcement, emphasized the importance of avoiding immediate escalation. While he did not rule out contingency planning, his stance signaled a preference for diplomatic solutions.

Meanwhile, revised UK S&P Global/CIPS Composite and Services PMI data for March revealed a slight weakening compared to preliminary estimates, with the Composite PMI falling to 51.5 and the Services PMI to 52.5. Despite these figures, the relative moderation of US tariffs on the UK provided a significant boost to the Pound Sterling against the weakening US Dollar.