Sterling weakened slightly on Monday but is likely hold up better against the dollar than other currencies as long as the UK is seen outside the main target group of countries for tariffs by the Trump administration. As "Liberation Day" approaches, GBP/USD is expected to remain in its recent 1.2862-1.3015 range. Though most of the tariff focus is on Canada, the euro zone, and other trade partners with surpluses, the UK's deficit with the U.S. appears to have shielded it.

The pound has remained firm near 2025 highs against the dollar, up 5% against the Canadian dollar and 2.3% against the Aussie, but down 1% against the euro, which recently strengthened after announcements of German infrastructure and defense spending. Though holding relatively steady near 2025 highs, GBP/USD movement has certainly been influenced by the ebb and flow of tariff developments, both directly and tangentially. Once the current tariff and trade volatility subsides, traders may shift focus back to relative rate expectations. With UK short-term rates leading the G7 tables, GBP/USD should rise further, targeting September 2024 highs around 1.34.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)