Donald Trump’s trade conflict is poised to lift the pound back to levels not seen since before the 2016 Brexit referendum, reversing nearly a decade of declines as the US President’s tariffs weaken the dollar.
Bank of America analysts anticipate the pound will climb steadily from its current level of $1.33 to $1.43 by the end of 2025 and reach $1.54 by the end of the following year.
Such a significant rise in the pound would likely curb UK inflation by lowering import costs, notably energy prices, as key commodities like oil are priced in US dollars.
Additionally, the stronger pound could relieve pressure on borrowers, allowing the Bank of England to reduce interest rates further, as policymakers would no longer need elevated rates to control inflation.
Although the euro initially benefited more significantly from Trump’s trade war, Bank of America’s Athanasios Vamvakidis cautions that the European Union is actually more exposed than Britain to escalating US tariffs.
He noted that the euro’s recent strength was partly fueled by expectations of increased German government spending. However, he now sees Britain as better positioned.
“UK economic data has shown improvement. The pound has moved in line with broader currency market trends, and a market correction overall should further support sterling,” Vamvakidis explained.
He also suggested that fading enthusiasm over German fiscal stimulus and anticipated closer UK-EU security cooperation could further bolster the pound.
A recovery of this magnitude would mark a striking reversal in currency market trends, given the pound’s sharp fall following the Brexit vote.
Before Brexit, sterling typically ranged between $1.40 and $1.60, itself a drop from pre-financial crisis highs of just above $2.
Since the referendum, the pound has mainly traded between $1.20 and $1.40, with lows dipping below $1.07 during the financial turmoil caused by Liz Truss’s 2022 mini-budget, which had sparked fears of parity with the dollar.
Now, however, Trump’s self-inflicted market turmoil has weakened the dollar, boosting sterling.
This turbulence has even sparked speculation that the US dollar could lose its coveted status as the world’s primary reserve currency, potentially diminishing America’s financial and geopolitical clout.
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