GBP/USD Forecast: Pound Slides as Dollar SURGES on US-China Tariff Pause

May 12, 2025 - Written by David Woodsmith

STORY LINK GBP/USD Forecast: Pound Slides as Dollar SURGES on US-China Tariff Pause

The dollar already had a firm tone in early Europe following statements from the US and China that bilateral trade talks over the weekend had been constructive.

There was a further dollar surge after the European open as US Treasury Secretary Bessent stated that there was an agreement to lower tariffs by 115% for a 90-day period starting on May 14th.

Sterling held firm on the crosses, but the Pound to Dollar (GBP/USD) exchange rate slumped to 4-week lows around 1.3170 from Friday’s close just above the 1.3300 level.

GBP/USD will need to regain the 1.3250 level to avoid a sustained loss of technical support.

The US tariffs on Chinese imports will be cut to 30% from 145% while the tariffs on US exports to China will be lowered to 10% from 125% for the same period.

According to the statement; “both countries will establish a mechanism to continue discussions about economic and trade relations".

The Chinese Commerce Ministry added that tariff cuts are in the "common interest of the world".


SocGen Senior Strategist FX And Rates Kenneth Broux commented; "There is a de-escalation between China and US resulting in a reduction of tariff on Chinese goods to 30% and Chinese tariffs on US goods to 10%. It's a clear vote by the market in favour of riskier assets. It's a step in the right direction and a positive of U.S. assets and U.S. economy."

As far as the dollar is concerned he added; "The dollar was lagging other markets in the recovery from the April lows. We had equities up back to April 2nd levels, we had bond yields up to those levels and the dollar was actually lagging that move. Now the conditions are falling into place for a deeper adjustment and a bigger recovery of the dollar to catch up with equities and bond yields."

MUFG added; “We would expect more of what we are seeing so far this morning – the US dollar to advance versus core G10 currencies like JPY, CHF and EUR but to underperform the high-beta commodity currencies like AUD, NZD and NOK.”

Nordea Chief Market Analyst Jan Von Gerich expressed some scepticism; "Markets have taken it at face value, I personally am a bit sceptical, if you want to end up with low tariffs then why do it like this? It’s still bouncy, and uncertainty is elevated.

He added; "I’m still worried that there will be a last word, that now they’ve come to an initial conclusion the details won’t satisfy both sides, and there will be something else but, of course, time will tell. I would not take everything we hear at the moment at face value, that’s what we saw on ‘Liberation Day’ (April 2 tariff announcement), and now, and it still bounces both ways."

The chances of a Federal Reserve rate cut dipped further to below 10%.

MUFG added; “A delay to Fed rate cuts may help to offer some much-needed support for the USD in the near-term.”

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TAGS: Pound Dollar Forecasts