Sterling rose against the dollar and was little changed against the euro on Wednesday, as investors focused on the market’s reaction to US President-elect Donald Trump’s tariff promises.
Markets will closely monitor US economic data later today, which could affect the Federal Reserve’s easing path.
The greenback fell to its lowest level in a week as investors grew more cautious about Mr. Trump’s tariff promises while rebalancing their portfolios before the end of the month.
The pound rose 0.3% to $1.2612. It hit $1.2484 last week, its lowest level since May 9.
Analysts pointed out that expectations of a hawkish stance from the Bank of England and possible US tariffs against the eurozone will support the pound against the single currency.
However, if the trade conflict escalates, the British currency risks seeing a slowdown in the global economy.
The BoE’s Clare Lombardelli said on Wednesday that Trump’s proposed tariffs would also pose a risk to growth in the UK.
The pound sterling remained stable against the single currency, at 83.41 pence to the euro.
“With one-week deposit rates at 4.75%, the highest in the G10, sterling could benefit from inflows as the market gets a sense of the speed and scale of Trump’s policy agenda ” said Chris Turner, head of foreign exchange strategy at ING.
On Monday, the BoE’s Lombardelli argued for gradual interest rate cuts.
“As for the UK, we remain fundamentally convinced that the UK economy would struggle to sustain terminal rates as currently priced by the market, as would the Eurozone, given that both countries face similar structural weakness and weak growth,” US asset manager Candriam said in a note.
Money markets have pegged the BoE rate at around 4% by the end of 2025, while pricing in a lower ECB deposit facility rate of 1.8% compared to the current rate of 3.25 %.
