Sterling Gains Ground Amid Dollar Weakness

The British pound saw a slight increase against the dollar on Friday, holding near its recent three-year peak. This movement occurred as the dollar weakened in response to the announcement of extensive tariffs by the U.S. President.

At 1018 GMT, Sterling had risen by 0.1% against the dollar, reaching 1.3292. However, it experienced a slight decrease against the euro, trading at 85.26 pence per euro.

The dollar’s decline on Friday occurred ahead of the release of critical nonfarm payrolls data. The currency’s value decreased even as indications emerged that trade tensions between China and the United States were easing.

Market participants are now keenly awaiting the Bank of England’s upcoming policy decision, scheduled for the following Thursday. Current expectations suggest a potential 25 basis point rate cut.

However, certain economists anticipate that the Bank of England may need to accelerate its gradual approach to reducing rates. This is due to the increasingly pessimistic outlook for global growth, influenced by the U.S. tariffs.

The repercussions of these tariffs are already evident, as a survey released on Thursday confirmed a seventh consecutive month of contraction in British manufacturing activity during April. The survey also highlighted the impact of the increased tax burden on employers in Britain.

Analysts at Danske Bank noted that an investment climate characterized by significant uncertainty, widening credit spreads, and a positive correlation to a weaker dollar environment tends to favor a weaker pound.

Britain is aiming to mitigate the impact of U.S. tariffs through the establishment of an economic agreement with the U.S. administration and by working to eliminate trade barriers with the European Union following Brexit.

Political Developments in the UK

UK politics are also in focus following the right-wing Reform UK party, led by Nigel Farage, securing a fifth parliamentary seat. This includes their first mayoral position and multiple seats on local councils in the recent election results on Friday.

According to George Vessey, lead FX and macro strategist at Convera, this outcome highlights increasing concerns within the Labour party regarding the rise of the populist right, with Reform making notable gains across England.