Adjustment of U.S. Tariff Policy: UK Among a Few Exempt Nations
Recently, U.S. President Trump has been active on tariff policy. He signed an executive order on July 7 extending the "reciprocal tariff" grace period, originally set to end on July 9, to August 1. Letters were also sent to 14 countries, including Japan, South Korea, and South Africa, notifying them of new "reciprocal tariffs" effective August 1, with rates ranging from 25% to 40%.
In this global tariff battle, the UK is one of the few countries granted exemption. Currently, the U.S. has reached a limited agreement only with the UK and an agreement in principle with Vietnam, while negotiations with India, Japan, and the EU face difficulties. The Trump administration's "maximum pressure" strategy aims to drive trade talks through tariff threats, but the progress is falling short of expectations. U.S. Treasury Secretary Besent stated that countries not reaching an agreement by August 1 will see tariffs revert to the April levels, without clarifying whether August 1 is the final deadline.
Analysts indicate that the U.S. tariff policy has triggered market concerns. Data shows that last year, the U.S. imported $351 billion in goods from the seven countries threatened with increased tariffs, with Japan and South Korea, as the sixth and seventh largest trading partners, exporting $280 billion worth of goods, including key sectors like automobiles and semiconductors. Higher tariffs could increase consumer costs in the U.S. and even exacerbate the risk of global economic recession. The UK's exemption status undoubtedly provides a stable environment for its trade with the U.S., supporting the British pound.
Improvement in Anglo-French Relations: "Honeymoon Period" Boosts Diplomacy and Economy
Post-Brexit, a significant turning point has been reached in Anglo-French relations. On July 8, UK King Charles III hosted French President Macron at Windsor Castle with a high-level reception, marking the first state visit by a European leader post-Brexit and signifying a "honeymoon period" in relations between the two countries.
The first day focused on ceremonial activities, with heads of state and their spouses participating in a guard of honor and carriage parade, fostering a friendly atmosphere. In his speech, King Charles III emphasized the "complex common threats" faced by the two nations, and Macron expressed on social media a vision for jointly building the future. The following day, UK Prime Minister Starmer and Macron will engage in substantive discussions on three main topics: enhancing military cooperation through joint forces to support Ukraine in defense and security, pushing a "1:1 deportation pilot" to address the Channel smuggling issue in immigration, and restructuring the post-Brexit economic relationship framework for economic cooperation.
This visit is seen as a key step in the UK's "return to Europe" strategy. Despite lingering differences on immigration, the warming of Anglo-French relations will undoubtedly inject momentum into cooperation in trade, security, and other fields, indirectly benefiting the British pound's performance.
British Pound Trends and Market Focus
The current trend of the British pound is influenced by multiple factors. From a technical perspective, the GBPUSD has recently adjusted at a high level, falling below the 1.3680 support level on July 2 and remaining under pressure. However, the 1.3460 area is a key support; unless it is breached effectively, the short-term adjustment stance remains unchanged. If it can break through the 1.3680 resistance level, it may further aim at the 1.3790 target level; otherwise, it may continue to retreat.
The market is also focusing on the upcoming Federal Reserve's June monetary policy meeting minutes (July 10), which will influence the dollar index and, subsequently, the pound's movement. Additionally, while no significant UK economic data is due, the Office for Budget Responsibility previously warned that a global temperature rise of nearly 3°C would significantly impact the UK economy, possibly reducing GDP by 8%, highlighting long-term economic risks.
Overall, the Anglo-French diplomacy "honeymoon period" and U.S. tariff exemption provide dual benefits for the pound, but the uncertainty in the global trade environment and the Fed's policy direction will continue to influence its short-term trend. Investors need to remain vigilant.
