Pound strengthens as Dollar retreats under trade optimism

The Pound has continued to appreciate against both the Euro and the Dollar, putting it firmly on track for a weekly rise against its two main rivals.

After sliding by 1.60% versus the Euro over the previous fortnight, Sterling appears set to halt its decline, having recovered by 0.60% this week as investors have grown more confident.

The gains against the Dollar are even more notable, with the Pound advancing by 2.0%, which has propelled the exchange rate to its highest point since January 2022 and towards the 1.40 mark.

At present, the pair looks stretched, suggesting that a period of correction and stabilisation may be around the corner.

These expectations are reinforced by the announcement that the United States and China have now formalised the trade deal that was initially brokered last month in Geneva.

Speaking at the White House on Thursday evening, President Trump confirmed, “We signed with China yesterday.” Commerce Secretary Howard Lutnick explained in a broadcast interview that the agreement obliges China to supply rare earth materials to the United States, prompting Washington to dismantle certain countermeasures in response.

Trade tensions have been a central factor behind the Dollar’s poor performance in 2025. They have also fuelled demand for the Euro, as European investors repatriated capital and foreign investors sought opportunities across the continent.

This progress in trade talks could therefore trigger a pullback in the Pound-Dollar rate while creating space for the Pound to regain ground against the Euro after its losses in June.

In April, tariffs on Chinese goods had reached an effective average rate of 143%, according to figures compiled by the World Trade Organisation. These barriers threatened to weigh heavily on U.S. growth and spurred substantial selling of Dollars. Since the start of 2025, the Dollar has declined by 11% against the Pound and by 13% relative to the Euro.

The Dollar briefly rallied on 12 May when markets welcomed news of the Geneva agreement to reduce tariffs, although this initial accord was only partial. Negotiators have continued to meet, most recently in London.

Indications that a full-blown tariff crisis can be averted have helped ease concerns about a U.S. recession and removed one drag on the Dollar.

Lutnick noted that agreements with ten of America’s largest trading partners are now within reach. These pacts reduce the likelihood that a disruptive ‘cliff edge’ will materialise on 9 July, when the temporary suspension of tariffs announced on 2 April expires.

“We will complete the ten principal deals, categorise them properly, and other countries will follow behind,” Lutnick stated.

This development is an important sign that trade uncertainty could soon subside, lifting a cloud that has troubled investors since Trump began his second term.

Lutnick added that while countries can always return to the table for further talks, the tariff rates will be settled and implemented.

Although trade issues may be drawing to a close, the Dollar still faces several obstacles. Rising U.S. debt levels, plans to increase taxes on foreign investment, a slowing economy, and an erosion of America’s perceived economic advantage are all contributing to continued weakness. Investors are increasingly rotating capital into European and Asian markets.

While these broader trends are likely to endure, there is a growing possibility that the Pound-Dollar and Euro-Dollar pairs will retrace part of their recent advances. This could give the Pound more room to edge higher against the Euro.