Why is the Pound Gaining against the US Dollar?

The Great British Pound (GBP) was the best performing major currency in Q1 2025. Even after the US confirmed 10% tariffs on all goods imported from the UK, the pound sterling had surged nearly 5.2% year-to-date by the end of the second week of April. This was close to three months after the new US President, Donald Trump, was sworn in and nearly 10 months to Keir Starmer’s mission-led government in the UK. Volatility in the GBP/USD creates opportunities for forex traders. Discover what’s driving the pound sterling’s rally so far in 2025.

What’s Pushing the GBP/USD Up?

The upward momentum in the world’s fourth most traded currency is due to investor sentiment around:

“Trumpcession” Impacting the US’s Economic Stability

Swiss investment bank UBS has revised its forecast for “stagflation or cyclical recession” in the US upwards. The bank now anticipates a 30% possibility, up from the earlier 25%, before Trump’s tariffs were confirmed. This creates uncertainty around the USD. However, the economic growth of the UK is forecasted to stay in the green. The country’s Office of Budget Responsibilities (OBR) expects the UK’s GDP to grow by 1.0% in 2025 and 1.9% in 2026. Given the positive economic outlook, the GBP/USD is on an uptrend.

UK’s Cushion Against US Tariffs

The UK has the second-largest economy in Europe, right after Germany, which is at risk of going into a recession due to tariffs. However, the UK’s GDP is likely to be hurt by only 0.1 percentage point by the tariffs. This is because a significant portion of goods exported to the US are manufactured outside the UK. This lowers the overall contribution of the exports to the US on the GDP of the United Kingdom.

Plus, the UK does not have a high trade surplus against the US, which gives no strong reason to the White House for a further increase in tariffs on it. This creates an opportunity for UK exports in the markets of the world’s largest economy, since they will remain cheaper for the US than those from other countries. 

Factors that Move the GBP/USD

The Cable is the third most traded forex pair globally. News events in both economies (the UK and US) can potentially impact the major forex pair. Knowing what moves the pair can help you develop comprehensive trading strategies and make informed decisions.

Interest Rate Differential

The monetary policies of the central banks of the two nations determine the interest rate differential. A high interest rate attracts investors, driving the demand for a currency. As of April 11, 2025, the interest rate differential between the pound sterling and the greenback was negligible. The Fed and BoE have held interest rates steady at 4.5%. This means factors other than the interest rate differential are more likely to drive movements in the Cable. However, you must keep an eye on announcements from the Fed and BoE to stay informed of any changes in the repo rates of the two nations.

Economic Data

GDP growth and manufacturing output positively impact investor sentiment, driving the domestic currency higher. Conversely, rising unemployment and inflation dampen investor confidence. This is because both weigh on consumption demand, lowering economic activity and thus affecting the country’s growth. Expectations of slowing growth drives investors away. Given Trump’s tariff push, the UK’s fundamentals and outlook are better than those of the US, which seems to be approaching a recession head-on.

Some of the important economic releases that forex traders focus on include:

• US: CPI, Non-Farm Payrolls, and GDP.
• UK: Core inflation, unemployment data, and GDP.

Such data also drives interest rate decisions by central banks.

Geopolitical Events

Events such as Brexit, a war in neighbouring nations, trade agreements, tariffs, change of government and global instability may push forex traders to safe havens. Such scenarios weigh on the GBP while supporting the USD or precious metals, such as gold. Forex traders, therefore, trade using derivative instruments, such as CFDs. This is because CFDs allow them to explore the opportunities in rising as well as falling markets. That means GBP/USD CFD traders can take advantage of opportunities regardless of whether the GBP rises or falls. Among other events, watching out for the ongoing trade war-related international tensions and the Russia-Ukraine peace talks could be helpful for the immediate refinement of GBP/USD strategies.

The Euro

Did you know that the EUR/USD and GBP/USD historically exhibit a strong correlation? While whether this still holds is under debate since Brexit, it is necessary to note that the EUR has been declining since the tariff announcements. The different US tariff levels for the UK and EU might have impacted the correlation between the two forex pairs. Moreover, Germany, the Eurozone’s largest economy, is at risk of a third consecutive year of GDP contraction.

Oil Prices

The UK is a net oil exporter. A surge in oil prices increases the demand for the GBP. Movement in oil prices, especially Brent crude, may also impact the GBP/USD.

To Sum Up

• The GBP/USD, the fourth most traded forex pair, surged in Q1 2025.
• The UK is one of the countries with the lowest US tariffs.
• The interest rate differential between the BoE and the Fed impacts the pound sterling’s value.
• GBP/USD rates are affected by geopolitical factors, economic data releases and oil price.
• The GBP is poised to surge further if the tariffs hold for long.

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