
The pound has surged to a four-month high against the US dollar as concerns over Donald Trump’s escalating trade war spark fears of an American recession.
Sterling edged up by 0.1% on Tuesday, surpassing the $1.30 threshold for the first time since November, as the US president’s hardline stance on tariffs unnerved global markets.
US Treasury Secretary Scott Bessent fuelled uncertainty over the weekend, cautioning that there were “no guarantees” the United States could avoid an economic downturn. However, he later sought to reassure investors by stating that the underlying economy remained “healthy.”
On Monday, Mr Trump doubled down on his trade policies, pledging no exemptions for his metal tariffs and reaffirming a commitment to broad-based reciprocal tariffs set to take effect from 2 April.
The turmoil has left central banks on both sides of the Atlantic in wait-and-see mode, with analysts expecting the Bank of England and the US Federal Reserve to hold interest rates steady at their upcoming meetings.
Market analysts suggest that sterling’s resilience may also stem from expectations that the UK will be less exposed to the fallout from Trump’s tariff battles.
Jane Foley, senior FX strategist at Rabobank, noted: “US data indicates a modest trade surplus with the UK, though British figures suggest the opposite. Trump’s steel and aluminium tariffs are unlikely to significantly impact the UK economy, and Sir Keir Starmer is maintaining a pragmatic stance, keeping his options open for potential negotiations.”
Meanwhile, global investors are shifting away from US assets in record numbers. According to the latest Bank of America fund manager survey, the mass exodus from US equities has been the largest on record, as traders seek safer ground in European and British markets.
Harald Berlinicke, partner at Sarnia Asset Management, said: “The market’s response reflects growing frustration with Trump’s tariff drama. UK stocks have benefitted from sterling’s strength and the dollar’s decline.”
This flight to European equities has pushed fund managers’ investments in eurozone companies to their highest levels since July 2021, the survey found.
US tech stocks take the biggest hit
The sell-off has been particularly brutal for American technology stocks, which had been at the forefront of the recent bull market. The S&P 500 has slumped more than 7% over the past month, with tech giants experiencing some of the steepest losses.
Nvidia, the microchip powerhouse, has seen its share price tumble 14% in the past month, while Palantir Technologies, the AI-driven software firm co-founded by Peter Thiel, has plunged by 30%.
Bank of America has labelled the current downturn a “bull crash,” noting that investor sentiment towards the US economy is at its lowest since November 2023.
Bruno Schneller, managing partner at Erlen Capital Management, warned that fears of stagflation and deepening trade tensions have shaken confidence in “American exceptionalism,” a belief that had underpinned the previous stock market rally.
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Pound hits four-month high as Trump’s tariff war rattles markets