The British pound strengthened for a third consecutive day, hitting a two-week high against the U.S. dollar. A lack of clarity regarding U.S. tariff policies has weighed on the greenback, boosting sterling’s appeal. The pound climbed 0.1% to $1.2376, marking its strongest level since January 8.
Initially, the pound fell more than 0.3% in early trading. Data showed that the UK borrowed more than expected in December, raising concerns over fiscal stability. However, uncertainty surrounding the U.S. administration’s tariff strategy pressured the dollar, allowing the pound to recover. So far this week, sterling has gained 1.6%.
President Trump has yet to impose tariffs on U.S. imports after returning to the White House. However, he is considering tariffs of approximately 25% on Canadian and Mexican imports and 10% on Chinese goods starting February 1. Additionally, Trump has vowed to introduce tariffs on European Union imports but has not provided specific details. On Monday, he hinted at a possible universal tariff but noted that no decision had been finalized.
While the pound has strengthened against the dollar, the euro rose 0.14% against sterling, reaching 84.50 pence. On Monday, it touched its highest level since August at 84.73 pence. Investors remain cautious about the UK’s economic outlook. Since the start of the year, sterling has fallen nearly 2% against the euro.
Analysts at UniCredit suggest that a weaker UK economy and potential Bank of England rate cuts could weigh on sterling throughout the year. Currently, markets anticipate approximately 65 basis points of BoE rate cuts in 2024.
Official data released on Wednesday revealed that Britain’s budget deficit was larger than expected in December. Public sector net borrowing reached £17.8 billion ($22 billion), exceeding estimates by more than £10 billion compared to the previous year. This fiscal pressure poses challenges for UK Finance Minister Rachel Reeves, who must navigate economic uncertainties while managing public finances.
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Sterling hits a two-week high against the dollar amid U.S. tariff. Analysts predict further volatility as market concerns persist.
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