CAPITALDIGEST MARKET REVIEW, 12/05/2025

STERLING RISES EVEN AS BOE CUTS RATES, BRITAIN POISED FOR US TRADE DEAL

The pound rose on Thursday, after the Bank of England delivered a widely expected cut to interest rates, just as Britain was poised to strike a deal with the United States on trade. The BoE cut its main rate by a quarter point to 4.25%, despite an unexpected three-way split among policymakers as U.S. President Donald Trump’s tariffs weigh on global economic growth. The pound was last up 0.2% on the day at $1.3311, having rallied from a session low of $1.3242 right before the BoE decision. UK stocks pared some of the day’s gains, but still showed a gain, with midcap stocks up 1%, outpacing the blue-chip index, which rose 0.2%. UK government bonds came under pressure, sending 10-year yields up 3.5 bps on the day to 4.491%, from 4.446% right before the BoE decision.

POUND, UK STOCKS TAKE SOME HEART FROM US/UK TRADE DEAL

The pound edged up on Thursday while British stocks struggled to find a foothold after U.S. President Donald Trump and UK Prime Minister Keir Starmer unveiled an eagerly awaited trade deal. UK markets got some support from the Bank of England’s widely expected decision to cut its main interest rate by a quarter of a point to 4.25%, although a surprising three-way split among policymakers highlighted how Trump’s tariffs continue to cloud the economic outlook. At a press conference in the Oval Office on Thursday, Trump and Starmer announced trade agreements on aluminium and steel, automotive and aerospace exports, and pharmaceuticals. The pound rallied as much as 0.5% overnight, when reports of a possible deal surfaced, but pared much of those gains when some of the details emerged. U.S. Commerce Secretary Howard Lutnick said the 10% tariff on imports from the UK would remain in effect, while Britain also retained a digital tax on large U.S. tech companies.

DOLLAR SET FOR WEEKLY GAIN AMID US TRADE DEAL OPTIMISM

he dollar was set for a weekly gain against major currencies, including the Swiss franc, yen and euro on Friday, after a U.S.-UK trade deal increased optimism about upcoming U.S.-China talks. Financial markets are heading into the weekend with the focus squarely on trade negotiations between Washington and Beijing due to begin on Saturday in Switzerland. President Donald Trump had announced on Thursday a U.S.-UK trade deal that left in place a 10% baseline tariff on British goods, but lowered prohibitive duties on vehicle imports. “There’s strong optimism across the market of progress in US-China trade talks in particular and more broadly more trade deals,” said Matthew Weller, head of market research at StoneX. “It does seem like the Trump administration is perhaps extending a series of olive branches to different countries and perhaps the worst of the trade wars and tariffs is … behind us.

STERLING CLAWS HIGHER AFTER US/UK TRADE DEAL

The pound rose on Friday, following the announcement of a “breakthrough” trade deal between Britain and the United States the previous day. U.S. President Donald Trump and British Prime Minister Keir Starmer on Thursday announced a limited bilateral trade agreement that leaves in place Trump’s 10% tariffs on British exports, modestly expands agricultural access for both countries and lowers prohibitive U.S. duties on British car exports. The deal, while light on substance and unlikely to serve as a blueprint for other countries, analysts said, was enough to offer investors some hope that trade agreements with the Trump administration were possible. Britain will hold talks on trade with the European Union later this month and the U.S. deal has helped shore up sentiment around that, ING strategist Francesco Pesole said. “The deal had already been largely priced in, and the implications for the UK economy are not significant,” he said. “That said, the UK has now signed two trade deals in quick succession, and that is keeping markets hopeful on trade talks with the EU,” Pesole said, referring to UK’s trade agreements with the United States and India.

DOLLAR JUMPS ON SINO-US DEAL ON TRADE

The dollar surged on Monday as investors cheered a Sino-U.S. deal that would slash reciprocal tariffs during a 90-day hiatus, easing fears of a damaging trade war between the world’s two biggest economies. U.S. Treasury Secretary Scott Bessent told reporters the two sides had reached a deal for a 90-day pause on trade measures following negotiations with Chinese officials in Geneva over the weekend. The greenback climbed against safe-haven currencies, rising 1.7% to 147.835 yen and 1.5% to 0.84405 Swiss francs . The dollar, U.S. Treasuries and equities have taken a beating since U.S. President Donald Trump’s often chaotic roll out of sweeping tariffs last month shook confidence in American assets. “The dollar was lagging other markets in the recovery from the April lows. 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,” said Kenneth Broux, senior strategist FX and rates at Societe Generale in London.