The skies brightened for the pound on Tuesday as market confidence in Donald Trump’s economic policies showed signs of weakening. In what has otherwise been a bleak February, sterling improved by the best part of a cent against the US dollar and GBP/EUR shaded into positive territory on the day.
Since his election triumph, the US dollar has basked in the glow of so-called “Trump trades” – speculative bets that the American economy would outperform its rivals in the short term. Yet recent tariff announcements have led to a rethink in how Trump’s policies would impact the economy at large.
A quieter day for economic data allowed this narrative to build momentum. Trump traders have seen less return on their investment than expected since the start of 2025. This has been caused by a combination of factors, including the president’s on again, off again flip-flops as well as some of his proposed tariffs being less aggressive than predicted.
European leaders coordinated some robust responses to proposed tariffs on metals. European commission president Ursula von der Leyen warned that “unjustified tariffs on the EU will not go unanswered”, while German chancellor Olaf Scholz promised Europe would respond to any trade restrictions as one.
Federal reserve chair Jerome Powell gave testimony in front of the US Senate yesterday afternoon. All things considered it was a fairly muted event, with Powell sidestepping questions around policy direction and declining to assess the early impact of trade tariffs.
Today’s economic calendar is dominated by US inflation data along with the second part of Powell’s testimony. Tomorrow presents a clear risk to the pound in the form of GDP growth data. Economists expect GDP to have recorded zero growth in the fourth quarter of last year but sterling is likely to be volatile regardless of the read.
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