The pound moved closer to a three-year high against the dollar on Thursday, as mounting concerns over a potential U.S. recession weighed on the greenback.
Sterling rose 0.1% to $1.334, despite data showing UK factory activity contracted for a seventh consecutive month in April. The pound briefly touched its highest level since February 2022 earlier this week, following a 3.2% surge last month—its strongest monthly gain against the dollar since November 2023.
Confidence in U.S. assets has been shaken by Donald Trump’s aggressive trade policies and a surprise contraction in the American economy during the first quarter of 2025, marking its first decline since 2022.
Jane Foley, senior strategist at Rabobank, said the probability of a U.S. recession now exceeds 50%. However, she noted the dollar could regain strength later this year if tariffs drive inflation higher, potentially prompting the Federal Reserve to slow its pace of interest rate cuts.
“China’s resistance in the face of the trade war has led markets to reassess the relative strengths of both sides,” Foley said. “There’s growing speculation that it may be the U.S., not China, that blinks first.”
She added that if this dynamic increases the likelihood of new trade deals, market sentiment could improve significantly in the coming months.
