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The Pound Sterling (GBP) has risen to nearly 1.3200 against the US Dollar (USD) following the announcement of higher tariffs by the US. A 10% tariff on US imports has raised concerns of a potential recession in the United States.
During Thursday’s North American trading hours, GBP/USD increased as the US Dollar weakened. The US Dollar Index (DXY) fell to approximately 101.35 after the tariff news, which has led to fears of impending recession and possible interest rate cuts by the Federal Reserve.
Impact Of Lower Than Expected US Data
The US ISM Services PMI for March was reported at 50.8, below the anticipated 53.0 and last month’s 53.5. Lower tariffs for the UK compared to other nations may provide some competitive advantages, although British firms could still confront fierce competition.
UK Prime Minister Keir Starmer has advised against a trade war, emphasising the need for preparedness amidst these tariff developments. The UK S&P Global/CIPS Composite and Services PMI for March also underperformed, registering at 51.5 and 52.5, respectively.
Technically, the Pound’s value nears 1.3175, supported by the 61.8% Fibonacci retracement level. Downward support is at around 1.2930, while resistance is noted at the September 26 high of 1.3434.
Recent US tariff developments have significantly affected the currency market, benefitting the Pound Sterling in light of anticipated economic challenges.
Market Responses To Tariff Induced US Weakness
This recent surge in Sterling comes on the back of a rather abrupt policy move from Washington, with a 10% tariffs package now imposed on a broad range of imported goods. The market read it fairly quickly: this increase in trade costs could further squeeze domestic firms and elevate underlying price pressures, placing even greater strain on US service sector demand — a sector already revealing signs of slowing momentum.
The unexpected softness in the ISM Services PMI, dipping to 50.8 from 53.5 just one month earlier, is exactly the kind of signal that tends to reverberate through FX and rates desks. From our perspective, it underscores an unambiguous warning: business conditions are deteriorating at a time when policy room is narrowing. For those watching closely, the margin for error on forward guidance from the Fed is shrinking. The market has started leaning into the idea of rate cuts as more than a late-2024 story.
That’s reflected in the DXY’s drop near 101.35. Each leg lower on the dollar weakens its global purchasing power, and yet, dollar-denominated debt across the globe doesn’t shrink with it. This is how a soft USD can still carry hard implications, and it’s part of the reason currency volatility has picked up over the last few sessions.
For Sterling, the move above 1.3175 isn’t just technical noise. That level aligns closely with the 61.8% retracement calculated from last autumn’s high to December’s lows, which tends to be well-monitored across both buy-side and sell-side desks. A sustained close above here doesn’t mean a straight line forward, but we’d anticipate plenty of optionality interest to start clustering near 1.3200 handles — reflective of a positioning play around potential breakouts toward the 1.3430 area, last seen in late September.
Still, it would be shortsighted to think that UK-specific data is carrying the move on its own. The latest Composite and Services PMIs for March coming in at 51.5 and 52.5, while technically in expansion territory, serve more as a reminder that the post-pandemic bounce has long since levelled off. If anything, internal demand growth in Britain continues to face limits, and the visible hesitancy from the consumer side suggests that pricing power won’t be what it used to be. There’s an upper bound to what services-led growth can deliver under current real wage dynamics.
That said, the UK does find itself relatively better positioned in this phase of tariff reshuffling. While industries may not be immune to price pressures, the relatively lighter burden on UK exports — compared to peers impacted more severely by these new US duties — allows for a degree of resilience on trade flows. This could keep GBP comparatively supported into the summer, even if UK fundamentals don’t turn dramatically positive.
In strategic terms, we’re looking closely at those longer-dated option structures where implied vol sits below realised — particularly in GBP/USD, where some of the vols are out of sync with underlying directionality risk. If forward guidance from the Fed continues to soften, that asymmetry could become more compelling to trade.
Meanwhile, it’s also worth noting how political guidance is being shaped at home. Starmer’s call for measured responses and attention to preparation speaks directly to concerns about reactive policy swings. Whether that keeps volatility contained depends greatly on how EU and Asia respond to US protectionism. But at minimum, such messaging creates a sense of continuity from the UK side — and in markets, steady messaging can often count for more than sharp rhetoric.
All told, we track flows not just around breakout levels but also around the re-pricing of forward rates. Look for spot pullbacks toward the 1.2930 “safety net” area to invite accumulation interest, while upper moves near the 1.3430 high are likely to be tested only if another tangible shift in US inflation or labour data steers a definitive adjustment in Fed credibility. Timing around the next nonfarm print or CPI read could offer such a catalyst. Until then, stay nimble, eyes on cross-asset correlations, and measure risk in terms beyond spot charts.
