- Constructive investor sentiment aids gains
- China and U.S. seal trade accord
- Pound-to-Euro: 1.1740
- Pound-to-Dollar: 1.3726
Above: File image of U.S. Commerce Secretary Howard Lutnick.
The British Pound extended a rally against the Euro and Dollar, putting it on course to register a weekly gain against its two most important counterparts.
Having fallen 1.60% against the Euro in the previous two weeks, Pound Sterling is about to snap the selloff and is sitting on a gain of 0.60% for this week, aided by the clear improvement in investor sentiment.
The weekly advance against the Dollar is a more decisive 2.0%, which puts the Pound to Dollar exchange rate at its highest level since January 2022 and on course for 1.40.
Above: The GBP/USD staircase. Consolidation is due.
To be sure, the pair is looking overbought now, and a pullback and consolidation are increasingly likely in the coming days.
This is increasingly likely given news the U.S. and China have finalised the trade accord reached last month in Geneva,
"We just signed with China yesterday," U.S. President Donald Trump said at the White House on Thursday night.
U.S. Commerce Secretary Howard Lutnick said in a news interview the agreement means China will "deliver rare earths to us," and in response, "we'll take down our countermeasures."
Trade risks are a significant reason for the Dollar's underperformance in 2025. It has also boosted the Euro, which advanced against most peers as European investors repatriated funds and international investors saw Europe as an alternative investment destination.
GBP/EUR is still down on the year, in part due to the strong demand for euros owing to tariff fears.
This progress could therefore set the Pound-Dollar up for a retracement of recent gains, while at the same time allowing the Pound-Euro to recover the losses it endured through much of June.
At one point in April, the total tariff wall on Chinese imports towered at an effective 143%, according to the World Trade Organisation's tracker.
The tariffs risked significantly slowing the U.S. economy, which has prompted significant selling of dollars. The Dollar has fallen by 11% against the British Pound in 2025, and is down 13% against the Euro.
The Dollar jumped on May 12 when markets welcomed news that China and the U.S. had reached an accord to lower tariffs in Geneva, Switzerland. That accord was not a complete trade agreement, and negotiating teams have met since, most recently in London.
Signs that a major tariff shock will be avoided further lower the odds of a U.S. recession, reducing one headwind against the under-fire Dollar.
Importantly, Lutnick said agreements with 10 major trading partners were at hand.
The deals lower the odds of a trade 'cliff edge' on July 09 being reached, when a temporary moratorium on tariffs announced on April 02 ends.
"We're going to do top 10 deals, put them in the right category, and then these other countries will fit behind," said Lutnick.
"This looks like a relatively orderly framework, potentially comforting markets," says a note from KBC Bank in Brussels.
Above: The U.S. S&P 500 suggests investors are not worried about much anymore.
The news represents a significant signal that trade uncertainty is close to resolving, removing a major uncertainty that has been bedevilling investors since Trump started his second term as President.
"If people want to come back and negotiate further, they’re entitled to, but that tariff rate will be set and off we’ll go," said Lutnick.
Although the issue of trade appears close to resolving, the Dollar faces other headwinds, including rising U.S. debt, plans to tax foreign investors, a slowing economy, the general loss of U.S. 'exceptionalism' and a rotation into European and Asian assets.
The bigger trends will likely remain in place, but the prospect of a pullback in Pound-Dollar and Euro-Dollar is growing. This can allow Pound-Euro to edge higher.
"The higher yielder currencies will continue to benefit as we enter the Summer holiday season and see volatility grind lower and SPX grind higher," says W. Brad Bechtel, Head of FX at Jefferies LLC.