Monthly FX Outlook

President Trump’s latest trade announcement and a subsequent 90-day pause for most countries jolted currency markets, but the pound’s reaction diverged from conventional expectations. In this month’s outlook, we assess how the UK’s relative insulation from US tariffs has paradoxically coincided with growing downside pressure on sterling, driven primarily by a sharp repricing of Bank of England rate expectations. We explore how this interacts with the UK's fiscal stance, recent macroeconomic data, and evolving trade vulnerabilities—particularly considering continued pressures from US tariffs. With the euro supported by a more measured shift in ECB policy and the EU’s cohesive trade response, we ask: what does this divergence mean for the pound in the months ahead?