The pound may be getting stronger but it has little to do with the UK economy. Sterling briefly touched $1.37 against the dollar this week (GBP/USD), its highest level since October 2021, driven by political noise in Washington rather than domestic strength.
The move followed reports that President Trump is considering replacing Federal Reserve chair Jerome Powell ahead of schedule, potentially as soon as September. Powell’s term runs until May 2026, but Trump has grown increasingly vocal in his criticism, calling him “terrible” and suggesting he is looking at several possible successors.
The concern among investors is not just over who might replace Powell, but what it signals. The Fed’s independence has long been viewed as a pillar of market credibility. If that is weakened, expectations around inflation, interest rates and debt sustainability all shift. A politically aligned Fed chair could lead to looser policy at a time when inflation risks remain elevated.
Names reportedly under consideration include former Fed governor Kevin Warsh and Treasury Secretary Scott Bessent, both seen as more likely to accommodate the White House’s agenda.
The dollar slipped on the news, helping lift the pound and other major currencies. But the broader context matters, the US economy contracted in the first quarter for the first time in three years, and new tariffs are set to take effect in July. JPMorgan still puts the risk of a US recession this year at 40%.
The pound’s strength is less a reflection of UK momentum and more a reaction to perceived instability in the US policy framework.
