Why the Pound's Surge Past $1.35 Could Signal a Swing – What You Must Know

• GBP jumps past $1.35 – a level not seen since early 2023, driven by US tariff news.
• US‑UK trade deal stays intact, shielding British exporters from a 15% tariff shock.
• Robust UK PMI and retail sales suggest domestic momentum that could sustain the rally.
• Record public‑sector surplus signals fiscal health, adding a safety net for the currency.
• Potential flash points: further US trade policy shifts or Eurozone weakness could amplify gains.

You missed the pound's breakout because you ignored the trade policy ripple effect.

Over the past week, sterling surged past the psychological $1.35 mark, snapping a month‑long dip. The catalyst? A surprising twist in US trade policy that has left markets scrambling for the next move. President Trump announced a modest hike in the temporary global tariff—from 10% to 15%—after the Supreme Court blocked broader measures. While the headline sounds bearish for global trade, the U.S. Trade Representative quickly reassured that existing agreements, including the newly‑signed UK‑US trade pact, remain untouched. That reassurance sparked a swift re‑rating of GBP, as investors priced in a lower risk of a punitive 15% levy on British goods.

Why GBP's $1.35 Barrier Break Matters for Your Portfolio

Breaking $1.35 isn’t just a number; it signals a shift in market perception of risk. Historically, a breach of a round‑number threshold triggers algorithmic buying, stop‑loss adjustments, and a cascade of speculative capital. For currency traders, the move translates into tighter spreads and higher liquidity, making it easier to enter positions. For longer‑term investors, it hints that macro‑fundamentals—especially trade‑related ones—are tilting in the UK's favor.

How US Tariff Shifts Are Re‑shaping Currency Flows

The United States remains the world’s largest single‑country market, and its tariff policy reverberates across FX markets. A 15% temporary tariff on imports could theoretically hurt export‑dependent currencies, but the nuance lies in the scope. The Supreme Court’s block on broader measures kept the higher‑tariff band limited, preventing a blanket shock to global supply chains. Moreover, the reaffirmation that the US‑UK agreement stays valid means British exporters to the United States avoid the higher levy, preserving their profit margins.

Technical definition: A “temporary global tariff” is a provisional duty imposed on imported goods, often used as leverage in trade negotiations. Unlike permanent tariffs, it can be adjusted or withdrawn with relatively short notice, creating volatility in affected currencies.

Sector Ripple: Export‑Heavy Industries and the UK Trade Deal

With the tariff hurdle largely bypassed for UK products, sectors such as automotive, aerospace, and pharmaceuticals stand to benefit. These industries account for roughly 30% of UK export earnings. A sustained GBP strength could reduce the cost of imported components, improving margins. At the same time, a stronger pound makes UK‑made goods pricier abroad, but the tariff shield offsets part of that downside.

Competitor analysis: While the pound rallies, the euro faces headwinds from sluggish German industrial output, and the yen remains under pressure from a divergent monetary stance in Japan. For diversified portfolios, reallocating a modest slice from EUR‑based assets to GBP could capture the upside without overexposing to a single‑currency bet.

Historical Parallel: 2016 Brexit Vote and Currency Volatility

The last time the pound experienced a dramatic swing was the 2016 Brexit referendum. Following the vote, GBP plunged to a 30‑year low against the dollar, only to recover as the UK‑EU transition framework clarified. The pattern—shock, panic, then recovery—mirrors the current scenario: an unexpected policy announcement, followed by clarification (the trade pact), leading to a rally. Investors who entered on the dip in late 2016 saw multi‑digit returns over the next 12 months.

Investor Playbook: Bull vs Bear Scenarios for GBP

Bull case: Continued fiscal discipline (record £30.4 bn surplus), robust PMI data, and a stable US‑UK trade environment could push GBP toward $1.45 within six months. Positioning strategies include long‑term GBP‑denominated bond exposure, selective equity picks in export‑oriented UK firms, and using forward contracts to lock in current rates.

Bear case: Escalation of US protectionism, a reversal of the UK‑US trade deal, or a sudden Eurozone rebound could erode the pound’s momentum, pulling it back below $1.30. Defensive tactics involve hedging with options, reducing exposure to GBP‑linked assets, and diversifying into safe‑haven currencies like the Swiss franc.

Bottom line: The pound’s recent breakout is anchored in concrete policy signals, not just market hype. Ignoring the interplay between US tariff policy, the UK fiscal surplus, and domestic PMI data could cost you the next wave of upside.