Sterling firms against dollar; tariff fallout, Manchester election in focus

The British pound kicked off the week on a firmer footing on Monday, as traders digested the fallout from the U.S. Supreme Court striking down tariffs and political uncertainty from an upcoming election to fill a parliamentary seat.

Sterling rose 0.2% to $1.3506, helped in part by a broadly softer dollar. The pound was also up 0.1% against the euro at 87.34 pence.

Over the weekend, U.S. President Donald Trump announced a new levy of 15% on all imports after the Supreme Court on Friday ruled against his global tariffs.

For the UK, this would be an increase from 10% and renewed tariff uncertainty could weigh on sentiment.

“The full implications are as yet unclear. However, this is far from being the end of the tariff story,” said Rathbones’ head of market analysis John Wyn Evans.

High U.S. import tariffs appear to be here to stay and the full impact is likely to take “many years” to be felt, Bank of England policymaker Alan Taylor said on Monday.

BoE Governor Andrew Bailey’s appearance before the parliamentary Treasury Committee later this week is also in focus.

The BoE left rates unchanged earlier this month after a narrowly split vote. Money markets price in a roughly 75% chance of a quarter-point rate cut in March.

Expectations of easing have also picked up pace after data last week showed that the UK’s jobless rate rose in the fourth quarter of last year, while inflation in January hit its lowest since March 2025.

POLITICAL UNCERTAINTY IN FOCUS

Manchester’s Gorton and Denton constituency is set to hold a special election to fill a vacated parliamentary seat on Thursday in what is shaping up to be a key test for UK Prime Minister Keir Starmer and his Labour Party.

Sliding poll numbers and anger over allegations that his chosen U.S. ambassador, Peter Mandelson, once leaked government information to late sex offender Jeffrey Epstein, have given an edge to his rivals. Mandelson denies the allegations.

“A heavy defeat for the ruling Labour Party could re-ignite speculation over the Labour leadership and again weigh on sterling,” said ING’s FX strategist Francesco Pesole.

The pound has weakened in recent weeks on concerns that a change in government could bring fresh uncertainty.

While Starmer has so far staved off challenges to his leadership, the odds of him leaving office by year-end have jumped 12 percentage points to 63% on Polymarket this month.