The British Pound has plummeted to a decades-low valuation against the US Dollar. This drop came just after the United States and China announced a new trade deal. US Treasury Secretary Scott Bessent stated that both nations have agreed to lower import duties by 115% for a period of 90 days. Meanwhile, uncertainty over Brexit has seen the Pound weaken dramatically, falling well under 1.3200 against the Dollar. It dipped to close near 1.3170 on Monday, its lowest level in a month.
Bessent emphasized how far both countries have come, and how upbeat she felt about the future of trade relations. He warned that sustainability of solutions won’t be resolved with these fentanyl-related challenges. The total net change in tariffs will have an effect across asset classes globally. It will especially strengthen the US Dollar and US financial assets.
Trade Talks Yield Positive Outcomes
For his part, during a press conference, Bessent said he was pleased with the progress made in trade negotiations. He stated, “I’m happy to report that we’ve made substantial progress between the US and China in the very important trade talks.”
The discussions were held in Geneva this past weekend, July 10-11. Spirited negotiations took place with key figures such as US Trade Representative Jamieson Greer and China’s Vice Minister of Commerce Li Chenggang. Greer remarked on the deal’s potential to address the trade deficit, stating, “We’re confident that the deal we struck with our Chinese partners will help us to work toward resolving the trade deficit.”
This positive sentiment is at least partially responsible for energizing these negotiations. Consequently, the US Dollar Index (DXY) is flying high at almost 101.80, its best performance since April 10. Now, in light of these circumstances, analysts are predicting the deployment of new, bullish forces for most asset classes around the globe.
Implications for Currency Markets
The Pound Sterling has already plummeted 20% against the Dollar. This trend is particularly remarkable given that the Pound is the oldest currency still in circulation today. The Pound, originally introduced in 886 AD, is the world’s oldest currency still in use and is the official currency of the United Kingdom. This recent volatility in currency markets has largely been driven by expectations about, or speculation around, major upcoming economic data releases.
Employment numbers in the UK for the three months to March will be the next big influence on GBP/USD. Beyond the jobs numbers, the US Consumer Price Index (CPI) data for April will be most important. Analysts forecast UK labor market data to show a faster than expected increase in the jobless rate and a slowdown in wage growth. In this context, Huw Pill emphasized, “Not seeing a dramatic shift in the UK economy after tariff announcements,” suggesting that the immediate impacts may not be as severe as anticipated.
The Bank of England (BoE) has opted to maintain a “gradual and cautious” approach to monetary expansion in its recent policy announcement. This position is consistent with our prediction that reduced US tariffs will push the Federal Reserve to lower interest rates. This alteration would mean about a trillion-dollar change on currency dynamics.
Broader Economic Context
The resolution of trade tensions between the US and China is likely to alleviate high consumer inflation expectations in the US. Falling inflationary pressures help stoke speculation that the Federal Reserve will re-start its easing monetary policy cycle. Anticipation of lower interest rates is boosting the Dollar’s strength. It’s getting stronger compared to all the other currencies, even the Pound Sterling.
With markets now beginning to digest these developments, traders are increasingly on watch for economic indicators like inflation to shift currency valuations. The looming employment and inflation numbers should provide further perspective. That will allow us to get a much clearer picture of evolving economic conditions in both the UK and US.