Trump in discussion with Howard Lutnick, the Commerce Secretary who is spearheading the tariff strategy. Image: The White House.
Although perceived as a 'safe haven' in the tariff trade, the Pound still faces some squeeze points.
News reports rolling in ahead of the 'Liberation Day' tariff announcements - due at about 21:00 BST - show a growing preference for a flat universal tariff.
If the flat-rate tariff rate is surprisingly high, a severe post-tariff market selloff could ensue. Here, Pound Sterling could fall against the Euro and Dollar but rise against the Australian and New Zealand Dollars and other risk-sensitive currencies.
However, other reports point to a more nuanced set of announcements with the door left ajar to negotiations, which could allow the recent FX market function to persist, whereby the UK currency is seen as a relative 'safe haven' amidst the tariff noise.
The Pound's 'haven' status in tariff trade is largely due to the UK's favourable trade relationship with the U.S., which means the world's biggest economy often runs a trade surplus in goods with the UK.
This puts it well down the list of problem countries that the U.S. wants to reorganise its trade relationships.
"There are a number of scenarios for the impact on the UK, but our sense is that the UK escapes the worst excesses of tariffs due largely to a relatively benign trade position with the US. That should be GBP supportive," says Kamal Sharma, FX Strategist at Bank of America.
"While no outright bullish GBP theme has emerged, we have noticed clients using GBP as a numerator more and more. EURGBP puts, GBPAUD calls, and GBPCAD calls have all been going through," says a new note from Spectra Markets.
Above: The UK and Australia stand out as running rare goods trade deficits, image courtesy of Corpay's Karl Schamotta.
However, there are some significant tail risks for foreign exchange markets more broadly, and the Pound specifically.
Three Potential Negative Scenarios for the Pound
1) A significant market selloff. Disorderly market selloffs are quite clear-cut in nature, and we should expect the Pound to come under pressure against the traditional safe havens like the Dollar, Yen and Franc. The Pound-to-Euro exchange rate would also sell. However, gains against Emerging Market and commodity currencies like the Australian and New Zealand Dollars would be likely.
2) A tariff regime that targets non-trade barriers, like VAT. This type of tariff has fallen out of favour and is a low-probability event. But if enacted, the UK's 20% VAT charge would put the UK in the spotlight and cause a negative market reaction for GBP.
3) A relief rally. If the tariffs are less severe than expected, those hardest hit in the tariff trade would rally in relief. This leaves those that have benefited - GBP in particular - at risk.
"Expectations and markets have shifted more recently to the view of a broad-based set of tariffs, leaving open the possibility of a risk-on relief rally if the bark turns out to be worse than the bite," says Sam Hill, a markets analyst at Lloyds Bank.
Blanket Tariff Represents a Worst-case Outcome for Markets and GBP
The prospect of a flat blanket tariff is said to be increasingly favoured by the administration. This would pose significant problems for UK exporters and could challenge the Pound's ongoing resilience to tariffs.
"Talking with clients, the consensus appears to be for 10-15% blanket tariffs (maybe closer to the 10% mark), broadly similar to our house view. However, recent media reporting mentioned a 20% tariff baseline, which would be higher than expectations and risk-off," says Andrzej Szczepaniak, Senior European Economist at Nomura International.
Above: S&P 500 shows markets have settled in anticipation of the announcements.
A high flat-rate tariff could prompt a fall in equities, and the scale of that fall would be important for the Pound: if the S&P 500's selloff is restricted to recent lows, then the Pound would benefit, as has been the case this year.
However, a major 'messy' selloff could spark GBP weakness.
Flat-rate levies would apply widely, including to countries with which the U.S. does not have a trade imbalance, Bloomberg reported. This would include the UK, which the U.S. enjoys a rare trade surplus with.
While simple to administer, such a model risks triggering broad retaliatory action and complicating existing trade relationships.
Sources cited by Bloomberg noted that the president has not made a final decision, even as the announcement looms. The event is scheduled to take place in the White House Rose Garden at 4 p.m. Eastern Time.
Barclays Holds Tight on Bullish Pound Sterling Prediction
While the tariff move has been framed as pro-worker and revenue-generating, questions persist as to whether the goal is negotiating leverage or a permanent shift in trade strategy.
Trump’s aides are reportedly aiming to raise $700 billion annually in tariff revenue, a figure that would mark one of the most aggressive trade policy pivots in modern U.S. history.
The market’s reaction so far has included sell-offs in equities, pressure on the dollar, and elevated caution in the corporate bond market, according to the Financial Times.
Multiple Models Under Consideration
According to individuals familiar with internal deliberations, the Trump administration is weighing several competing tariff structures, including a tiered system, a customised reciprocal model, and a flat global rate, Bloomberg reported.
Each approach represents a different method for delivering on the president’s long-promised campaign to "level the playing field" on trade.
Under an alternative tiered approach, countries would be grouped into bands based on their existing tariffs and non-tariff barriers, with levies imposed at either 10% or 20%. The highest rates would target nations deemed the most egregious offenders in terms of protectionist practices.
An alternative reciprocal model - earlier touted by administration officials - would set individualised tariffs that mirror the trade barriers imposed on U.S. exports by specific countries.
Though this strategy had gained traction in recent weeks, it is reportedly no longer the leading option under discussion.
Tariffs to Take Immediate Effect
Timing will also be important for markets.
White House Press Secretary Karoline Leavitt stated the tariffs would be "effective immediately," while Treasury Secretary Scott Bessent suggested the rates could act as a cap, with countries given the opportunity to negotiate them down post-announcement.
According to the Financial Times, investors remain on edge, with many fund managers opting to reduce risk exposure ahead of the event. Market volatility has ticked up in recent days, with the VIX index rising to 22, above its long-term average.
"People are doing aggressively nothing," said Ed Al-Hussainy of Columbia Threadneedle Investments, reflecting a general market hesitancy as traders await clarity.
Tariffs could even apply to goods already en route to the U.S., raising immediate concerns for supply chains. While the official line suggests midnight enforcement, logistical complexities may delay implementation, as seen with earlier measures targeting auto and Canadian imports.
The administration’s internal debate remains intense, reflecting uncertainty not only in strategy but in policy objectives. It also says the market won't get the clear-cut finality to the tariff saga it wants.
"Whatever the news today, the cut-through is likely to be a continued hit to the short-term economic data as costs rise and unpredictability permeates," says Lloyds Bank's Hill.