Pound Sterling remains cautious ahead of the Trump-Starmer meeting

The Pound Sterling (GBP) trades cautiously against major currencies on Thursday, as investors await the outcome of UK Prime Minister Keir Starmer’s meeting with US President Donald Trump. The discussions are expected to focus on trade policies between the two nations.

Market participants are closely monitoring the Trump-Starmer meeting, given that the UK is the fifth-largest trading partner of the US, following Canada, Mexico, China, and Germany, according to the US Bureau of Economic Analysis (BEA).

Expectations for a constructive discussion remain high, as Trump has not accused the UK of unfair trade practices in his tariff threats since the election campaign. Earlier this month, Trump stated in a press conference that he was unsure about imposing tariffs on the UK and expressed confidence in reaching a trade agreement, describing Prime Minister Keir Starmer as "very nice".

Meanwhile, UK Chancellor of the Exchequer Rachel Reeves remains optimistic that US-UK trade and investment relations will remain strong under the new US administration. Speaking at the G20 Finance Ministers’ summit, Reeves noted that trade and investment flows increased the last time Trump was in the White House, and she is confident that the trend will continue.

Daily Digest Market Movers: Pound Sterling Declines as Trump’s Tariff Threats Spark Risk Aversion

• The Pound Sterling (GBP) weakens against the US Dollar (USD), trading near 1.2650 in European hours on Thursday. The GBP/USD pair faces selling pressure as investors seek safe-haven assets, driven by uncertainty surrounding US President Donald Trump’s tariff policies. The US Dollar Index (DXY) strengthens, climbing near 106.70.

• On Wednesday, President Trump signaled upcoming tariffs on the Eurozone, stating that "details on EU tariffs are coming soon." He confirmed that the tariffs would be 25% on autos and other imports. With Trump already imposing a 10% tariff on all Chinese imports, a new wave of duties on European goods could further fuel fears of a global economic slowdown.

• Meanwhile, Trump granted a one-month extension for Canada and Mexico to avoid tariffs, pushing the deadline to April 2. Initially, the US had planned to impose tariffs on February 4, but the deadline was extended to March 4 after Canada and Mexico agreed to tighten border security to curb fentanyl trafficking and undocumented immigration.

• Despite the USD’s strength, domestic economic data raises concerns about its sustainability. The S&P Global US Services PMI contracted for the first time in over two years, while Consumer Confidence data for February slumped significantly. These weak indicators have strengthened market expectations for Federal Reserve (Fed) rate cuts. The CME FedWatch Tool suggests a 68% probability that the Fed could lower interest rates in June.

• Investors now focus on key US economic data releases for further policy guidance. On Thursday, market participants will watch the US Durable Goods Orders for January, Initial Jobless Claims for the week ending February 21, and the updated Q4 2024 GDP report. Additionally, Fed policymakers Michael Barr, Michelle Bowman, Thomas Barkin, Beth Hammack, and Patrick Harker are scheduled to speak, while the US Personal Consumption Expenditures Price Index (PCE) for January—a key inflation gauge for the Fed—will be released on Friday.