Sterling Gains on Softer Dollar as Tariff Risks and Manchester Vote Loom

The British pound strengthened against the US dollar at the start of the week as investors weighed renewed global tariff uncertainty and a closely watched parliamentary contest in Manchester that could test the political standing of Prime Minister Keir Starmer.

Sterling rose around 0.2 percent to trade near 1.35 dollars, supported by a broadly weaker dollar across currency markets. The pound also edged slightly higher against the euro, reflecting cautious optimism among traders despite ongoing economic and political headwinds.

Market sentiment has been influenced by developments in the United States after the Supreme Court struck down earlier global tariffs introduced by President Donald Trump. In response, Trump announced a new 15 percent levy on imports, reviving concerns about trade tensions and the long term outlook for global commerce.

For the United Kingdom, the potential shift is significant. Under a trade understanding reached last year, Britain had secured a lower reciprocal tariff rate of 10 percent on certain exports. If broader 15 percent duties were applied, British businesses could face increased costs and renewed uncertainty in transatlantic trade.

Analysts say the full implications of the latest US measures are not yet clear. Some economists warn that higher import tariffs may become a persistent feature of the global trade environment, with effects that unfold over several years rather than months.

Attention is also turning to the Bank of England, where policymakers are balancing signs of easing inflation against a cooling labour market. Recent data showed the UK jobless rate ticked up in the final quarter of last year, while inflation in January fell to its lowest level since March 2025. Money markets are currently pricing in a strong probability of a quarter point interest rate cut in March.

Bank of England Governor Andrew Bailey is due to appear before the parliamentary Treasury Committee later this week, and investors will be watching closely for signals about the central bank’s next steps. A rate reduction could provide support to growth but may also influence currency dynamics in the months ahead.

Political developments are adding another layer of uncertainty. Voters in Manchester’s Gorton and Denton constituency will head to the polls on Thursday to fill a vacant parliamentary seat. The by election is being viewed as an important test for Labour amid sliding poll numbers and controversy surrounding former ambassador Peter Mandelson, who has denied allegations linked to an ongoing investigation.

Currency strategists note that a heavy setback for Labour could revive speculation about leadership stability, potentially weighing on sterling. Recent prediction market data suggests rising expectations that Starmer could face increased pressure later this year.

With trade policy shifts in Washington, monetary policy decisions in London and electoral politics intersecting, the pound is likely to remain sensitive to both economic data and political signals in the days ahead.