April 8, 2025 – Written by Tim Boyer
STORY LINK Pound Sterling Forecast: GBP Recovers vs EUR USD, Next US-China Moves Crucial
Trade considerations have continued to dominate on Tuesday with a further net recovery in risk appetite.
Markets overall are slightly more confident that there will be bilateral negotiations to ease the impact of US “reciprocal” tariffs, but there is still a very high degree of uncertainty.
The next move is likely to be determined by the US-China trade war. Risk appetite will surge further if China or Trump blink, but there are likely to be fresh losses in equities if neither side back off.
After sliding to 1-month lows near 1.2700, the Pound to Dollar (GBP/USD) exchange rate has recovered to 1.2785.
The Pound to Euro (GBP/EUR) exchange rate has recovered from 8-month lows below 1.1650 to trade around 1.1670.
Reservations surrounding the UK economic outlook have also increased, limiting Pound recovery potential.
Markets have also now fully priced in a rate cut at the May Bank of England meeting and there have been some calls for a 50 basis-point cut.
According to Scotiabank; “The loss of rate support adds to near-term downside risk for GBP.”
The 30-year UK bond yields edged higher again on Tuesday amid speculation that the government would eventually relax fiscal rules.
Monex noted that this was; “a notable concern for markets.”
According to Monex; “Our long-term view remains that UK fundamentals are better than markets currently price, now helped by tariff differentials, while the government will ultimately choose not to scrap their fiscal rules with the memory of Liz Truss still fresh in the mind.”
It did, however, add; “For now, though, with sentiment still in the driving seat, sterling looks set to continue trading under pressure.”
There is still an important element of uncertainty surrounding Chinese tariffs ahead of the April 9th scheduled introduction of additional tariffs.
China has not backed away from imposing its own tariffs while Trump has threatened even more aggressive tariffs if China refuses to bend.
In comments on Tuesday, Trump stated that China was desperate for a deal and that they would relent.
According to Scotiabank; “Messaging from the administration on tariff policy remains confusing.”
It added; “Markets may lack enough clarity on tariff policy end goals to form a solid base for now.”
US economic conditions will be a key element in the short term.
The NFIB small business confidence index dipped to a 4-month low of 97.4 for April from 100.7 previously and below consensus forecasts of 98.9.
Significantly, this has pushed the index below the long-term average.
The net percent of owners expecting better business conditions posted a third consecutive monthly decline and the largest monthly dip since December 2020.
According to the NFIB; “This year will be one ruled by uncertainty. Global and domestic actions are generating insecurities in abundance, both political and economic. President Trump’s administration is rearranging the deck chairs at a record pace. Is there an “iceberg” looming ahead or will we sail through to a restructured economy safely?”
The survey was conducted before the tariff increases came into effect and markets will be looking at data compiled after the tariff introduction for insight into the potential impact.
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TAGS: Currency Predictions Pound Dollar Forecasts
