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The British Pound just hit a three-year high against the Dollar.
The Pound-to-Dollar exchange rate rallied to 1.3444 on Tuesday, its highest level since February 2022, and analysts are watching to see if it can break through a key resistance level to deliver further gains.
The move comes amidst a broader advance in the Pound linked to fading market volatility and an extension of 2025's Dollar selloff; the U.S. currency is being sold no matter the weather, whether market sentiment is positive or negative, if bond yields are higher or lower.
We reported this morning that a collapse in shipping rates in U.S. ports, with analysis showing this is historically negative for the Dollar. The collapse in inbound shipping is the result of President Donald Trump's significant tariff hikes, which threaten to hit a significant part of the U.S. economy.
From import businesses to truckers and dock workers to consumers, what looks to be a sudden and sharp slump in imports will affect everyone.
Fears of a U.S. economic slowdown deflate the "American exceptionalism" trade of recent years, and offer the Pound-Dollar exchange rate a route higher.
With gains taking the exchange rate to 1.3444, the market teeters on the edge of a key resistance point:
Above: GBPUSD at daily intervals.
Given the graphical resistance, a pullback can't be ruled out in the coming hours and days, particularly if upcoming U.S. data releases beat already downbeat expectations.
However, it appears that bouts of Dollar strength will be short-lived given the strength of the current trends at play in global markets.
"The dollar’s underwhelming start of the week served as a reminder that even if the worst of the confidence crisis on the dollar’s reserve value may be past us, markets remain very much minded to link the greenback’s faith with US economic performance," says Francesco Pesole, FX Strategist at ING Bank.
Declining Volatility Boosts Sterling
Although the Dollar has weakened, there was some genuine British Pound outperformance at the start of the week that is linked to a decline in global equity market volatility.
A measure of volatility in the U.S. S&P 500 index eased to 23.37, having been as high as 60 in early April, helping the risk-sensitive Pound advance against major peers.
"Equity volatility has already normalised to a considerable extent," says a weekly foreign exchange update from strategists at Barclays. "We maintain our bullish sterling view."
Above: GBP advances against the Euro as market volatility eases.
Helping cool volatility is U.S. Trade Secretary Scott Bessent, who said in a CNBC interview that many countries have offered "very good" tariff proposals, raising hopes that some tangible good news on the tariff front was close at hand.
Bessent said the U.S. government was in contact with China and expressed a desire to avoid escalation, saying that China might want to de-escalate as well.
The Treasury Secretary also mentioned that there have been substantial talks with allies in Japan and that India might be one of the first countries with which the U.S. signs a trade deal.
Volatility spiked in early April after U.S. President Donald Trump announced a severe regime of import tariffs, prompting a market decline amidst fears the U.S. and global economies would buckle under the taxes.
The increase in fear corresponded with a selloff in the value of the Pound against the Euro and other 'safe haven' currencies, such as the Franc and Yen. However, currencies with a higher sensitivity to risk, like the Australian and New Zealand Dollars, saw the most severe pressure.