Official White House Photo by Daniel Torok
The U.S. and UK are set to announce a trade deal today.
The news was broken by U.S. President Donald Trump in a social media communication at 2AM BST.
On the announcement, global stock market futures rose, as investors saw this as confirmation Trump is willing to 'negotiate away' the worst of his trade tariffs.
Trump said on Truth Social: "Big News Conference tomorrow morning at 10:00 A.M., The Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!"
Of course, there is no explicit mention of the UK here, and a rise in the Pound-to-Euro exchange rate around the time of the announcement was more of a reaction to the improved investor move, as GBP/EUR is closely correlated with this sentiment.
Newspapers soon reported that UK officials were being lined up to meet Trump on Thursday, confirming that the UK had, in fact, reached a deal. This ensured the Pound held its gains into Thursday.
"Any material near-term market response is likely to continue Sterling's recent strength, take away one of the downside economic scenarios of tit-for-tat tariffs, and a bump in UK investment sentiment," says Simon French, Chief Economist & Head of Research at Panmure Liberum.
The Pound-to-Dollar exchange rate trades 0.20% higher on the day at 1.3315. Observers will be wondering what the fuss is about, given the relatively benign GBP/USD reaction.
This can be explained by the fact that the USD is likely the bigger winner of Trump's effort to de-escalate trade tensions. The first major deal in the process, therefore, arguably helps the USD more than the GBP.
"A de-escalation in tariffs is constructive for US assets," says Kenneth Broux, a strategist at Société Générale.
However, we can see some outright Pound Sterling outperformance against the Euro, with GBP/EUR trading a quarter of a per cent higher on the day at 1.1778.
On April 02, the U.S. announced a 10% tariff on UK imports, which was the lower-bound rate in a tariff spree that saw no country walk away unscathed.
The U.S. also added an additional 25% tariff to all vehicle imports, which is something UK negotiators will have been particularly keen to address.
The UK and the U.S. have a relatively well-balanced trade in goods, which means that a trade deal between the two countries will have been relatively easy.
"With many countries expressing a desire to negotiate with the US on tariff policy, and the Trump administration now somewhat pressured to demonstrate ‘success,’ we expect a variety of deals or sector carveouts to materialise," says Kurt Reiman, Chief Investment Office, UBS Global Wealth Management.
For markets, the bigger deal would be one between China and the U.S. given the scale of trade between the two. On this front, there was good news released on Wednesday that U.S. negotiators would meet Chinese counterparts in Switzerland over the weekend to begin the process.
While a U.S.-UK trade deal is good news for the Pound, the real FX story is the fading volatility in global markets as Trump abandons his 'hawkish' and unpredictable approach to tariffs.
Fading volatility is particularly supportive of GBP/EUR. However, GBP/USD might come under pressure amidst a broader USD rebound in the event the 'sell America' trade starts to reverse.
Gains for GBP will also be seen against the safe-haven currencies of the JPY and CHF. Losses against the 'high beta' Scandinavian currencies and AUD and NZD are likely.