Pound Sterling strengthens against US Dollar despite global trade war intensifies.

The Pound Sterling gains sharply to near 1.2750 against the US Dollar as traders have raised Fed dovish bets for the June meeting.
US President Trump has confirmed that he will impose 25% tariffs on Canada and Mexico and an additional 10% on China.
The BoE is expected to follow a gradual policy-easing cycle as the UK inflation is set to remain higher.

The Pound Sterling (GBP) posts a fresh two-and-a-half month high around 1.2750 against the US Dollar (USD) in Tuesday’s North American session. The GBP/USD pair strengthens as the US Dollar extends its downside despite an intensifying global trade war. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides below 106.00. Technically, heightening geopolitical tensions improves the appeal of the US Dollar.

In the North American session on Tuesday, Mexican President Claudia Sheinbaum Pardo said that retaliatory tariffs are coming on Sunday as “Trump starts a global trade fight”. On Monday, United States (US) President Donald Trump said that 25% tariffs on Canada and Mexico and an additional 10% levies on China to come into effect on Tuesday, which confirmed that fears of a global trade war have become real now. In retaliation, China has also slapped tariffs on major agricultural imports.

On tariffs over China, US Treasury Secretary Scott Bessent said China’s business model is to “export, and that is unacceptable.” Bessent said he is confident that Chinese manufacturers will “eat the tariffs.”

Earlier in the day, Canadian Prime Minister Justin Trudeau also threatened to impose tariffs on the US. Trudeau said that Canada will start with “25% tariffs on US imports worth C$30 billion from Tuesday.

Meanwhile, escalating Federal Reserve (Fed) dovish bets due to a slew of weak US economic data has also weighed on the US Dollar. An expected slowdown in the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for January, a sharp decline in Consumer Confidence for February – the first decline in the Personal Spending data for January in two years – and weak ISM Manufacturing PMI data for February have contributed to market expectations that the Fed could resume the monetary expansion cycle in June.

Traders have raised bets supporting the Fed to resume the policy-easing cycle in the June meeting, which was paused in January. The likelihood for the central bank to reduce interest rates in June has increased to 86.9% from 69% recorded a week ago, according to the CME FedWatch tool.

Going forward, investors will focus on the US ADP Employment Change, US ISM Services PMI, and the US Nonfarm Payrolls (NFP) data for February. All of them will be released during this week and are likely to influence market expectations for the Fed’s monetary policy outlook.