Pound Sterling's Special Relationship

27/02/2025. Washinton D.C., United States. Prime Minister Keir Starmer meets Donald Trump, the President of the United States of America for a bilateral meeting at the White House. Picture by Simon Dawson / No 10 Downing Street.

For the UK, "tariffs won't be necessary"; for everyone else, they will be.

This is the lay of the landscape following Prime Minister Keir Starmer's visit with President Donald Trump in Washington.

Trump said the UK and U.S. would work towards a "new economic deal" which could happen "very quickly".

“I think we have a good chance at arriving at a deal that could be terrific, really terrific for both countries,” the president said. “We could very well end up with a real trade deal where the tariffs wouldn’t be necessary.”

Trump's comments were made mere hours after the President said the U.S. would proceed with 25% tariffs on Canada and Mexico next week and would add an additional 10% tariff to Chinese imports.

He also confirmed that a further round of tariffs was due in April.

These developments confirmed market suspicions that the UK is relatively well insulated from Trump's new tariff world.

The British Pound outperformed all G10 peers on the day - apart from the U.S. Dollar - confirming that the Pound is increasingly seen as a relative safe haven in the tariff trade. "The special relationship helped sterling to limit losses within G10," says Kenneth Broux, a strategist at Société Générale.

The Pound-to-Euro exchange rate rose to its highest level since December 19 at 1.2131. The Pound-to-Dollar exchange rate fell to 1.2585 amidst a broad-based USD recovery linked to Trump's confirmation of wider tariffs.

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"Analysts see the pound as a tariff safe haven, believing the UK is less vulnerable to tariffs than major exporters like the EU. This is supported by sterling's appreciation against all G10 peers this week," says George Vessey, Lead FX & Macro Strategist at Convera.

According to the Times, the U.S. President offered Sir Keir Starmer a trade deal that could exempt the UK from being hit with American tariffs as he hailed the "wonderful" relationship between the two nations.

Trump said that Starmer had been “working hard” to persuade him to exempt Britain from the tariffs of up to 25 per cent he is imposing on other countries, adding that he had earned “whatever they pay him over there”.

Starmer said the deal would focus on AI and other advanced technologies, as he aligned Britain with the U.S. against what he criticised as an overly cautious approach in the EU.

"We take a similar approach on this issue — instead of over-regulating these new technologies, we’re seizing the opportunities that they offer," Starmer said.

"We’ve decided today to go further to begin work on a new economic deal with advanced technology at its core." Taking inspiration from Trump’s upbeat tone, Starmer said: "Artificial intelligence could cure cancer. That could be a moonshot for our age."