The pound surged to a four-month high against the dollar as Donald Trump’s tariff policies appeared to backfire.
Sterling climbed above $1.29 for the first time since November after the U.S. president announced a one-month reprieve for car manufacturers from tariffs on imports from Mexico and Canada.
The dollar weakened against a range of major currencies as uncertainty grew over Trump’s next move on trade policy.
Brad Bechtel of Jefferies noted: “The dollar adjustment continues at a rapid rate as markets price in the impact of tariffs primarily on the U.S. economy, rather than on the targeted countries. We are in the midst of the downswing now, and it’s unclear how far it can go.”
Kyle Rodda, an analyst at Capital.com, described U.S. trade policy as “the biggest uncertainty for markets.” However, he added that the temporary exemption for carmakers “supported hopes that rational decision-making will prevail in the White House. Even if trade relations don’t improve, at least they may not deteriorate further.”
The dollar’s decline has been compounded by a sharp sell-off in bond markets, pushing global yields higher.
Japan’s 10-year bond yield recorded its fastest increase since 2009, as Asian markets reacted to European bond movements from the previous day.
Meanwhile, European bond yields soared following remarks from Friedrich Merz, Germany’s likely next chancellor, who proposed a €500bn (£419bn) defence and infrastructure fund—a move that could overhaul Germany’s fiscal rules.
Germany’s 10-year bund yield jumped nearly 30 basis points in its largest daily rise since German reunification in 1990.
Analysts at DBS told clients: “A chunk of U.S. exceptionalism in the rates market has faded. We suspect the divergence in fiscal stances—between perceived austerity in the U.S. and aggressive spending in the eurozone—will remain a key factor in the medium term.”
