GBP/USD consolidates as Trump's reciprocal tariffs take center stage

The British pound (GBP) was trading flat against the U.S. dollar (USD) during Monday’s European session, trading around 1.2940. GBP/USD traded steady as investors turned cautious ahead of so-called "Liberation Day," when President Trump will announce reciprocal tariffs on his trading partners on Wednesday.

The reciprocal tariffs imposed by President Trump will have a significant impact on global economic growth. Goods subject to higher tariffs will become less competitive in the global market, and companies involved will be forced to significantly reduce their prices. This situation will force them to dump their products in other countries.

"We expect countries with the largest trade deficits with the United States, as well as those with the highest tariff and non-tariff trade barriers, to be targeted with reciprocal tariffs," said analysts at Barclays. According to their theory, the European Union (EU), China, Canada, India and Japan would face higher tariffs from the United States.

Financial market participants believe that the U.S. economy will also face economic risks in the short term due to Trump's tariffs. Analysts at Goldman Sachs have raised the chances of a U.S. recession to 35% from 20% previously. Their upgrade to recession risk was based on a sharp "deterioration" in household and business confidence, as well as statements from White House officials indicating "greater willingness to tolerate short-term economic weakness in pursuing its policies."