GBP/USD drifted lower on Tuesday as markets awaited details of President Donald Trump's "Liberation Day" tariffs but remained ensconced within its 1.2850-1.3015 trading range, hinting at an underlying bid that could lift the pound toward 2025 highs if global trade tensions abate. Fundamentally, UK rate expectations are slightly higher than in the U.S., which should keep the pound relatively bid versus the dollar. Additionally, the UK doesn’t feature prominently in Trump’s tariff disputes, unlike Canada, Mexico, China and the euro zone which maintain trade surpluses with the U.S., which suggests any potential levies on the UK could be less severe. Sterling has outperformed the euro, Canadian dollar, peso, yuan over the last three and six months. The recent sterling slide toward trend lows may be a broader dollar sympathy trade where the upcoming trade uncertainties have ushered in indiscriminate buying in the U.S. currency. With a less confrontational U.S. stance on UK trade and supportive rate fundamentals, once trade tensions normalize GBP/USD is likely to shift back to a bullish trend with targets including the 2025 high at 1.3015 and early October highs above 1.31.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)