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Finance

Sterling steady as Trump threatens EU with tariffs

Published by Global Banking and Finance Review

Posted on February 27, 2025

Featured image for article about Finance

By Samuel Indyk

LONDON(Reuters) - The British pound was little changed against the dollar on Thursday, trading just below a more than two-month high hit the previous day, as U.S. President Donald Trump's tariff threats turn towards the European Union.

Sterling was last at $1.2674 against the dollar, little changed on the day, having risen to $1.2717 on Wednesday, its highest level since December 18.

Late on Wednesday, Trump floated the idea of a 25% tariff rate on goods from the European Union, saying he would be announcing it "very soon".

Danske Bank analyst Mohamad Al-Saraf said the pound could be a relative outperformer from U.S. import tariffs because the trade deficit between the U.S. and Britain is relatively small.

"If we actually see tariffs being implemented, we expect the pound to outperform in the G10 space," Al-Saraf said.

"Looking at the price action in the past few months, the pound is relatively immune to all this tariff talk."

The pound has also been supported by expectations for relatively fewer rate cuts from the Bank of England than some other central banks, namely the European Central Bank.

The BoE lowered interest rates this month and markets are pricing in two further quarter-point cuts this year.

For the ECB, which is expected to lower interest rates next week, markets are fully pricing in three rate cuts and around 30% chance of a fourth.

Against the euro, the pound was little changed at 82.7 pence, just above last week's near 1-1/2 month high of 82.635 pence.

Eyes were also on British Prime Minister Keir Starmer's trip to Washington where he is set to meet Trump later on Thursday at the White House, with talks on security and a possible ceasefire in Ukraine high on the agenda.

Earlier this week, Starmer said Britain's defence spending would reach 2.5% of GDP by 2027, a signal to Trump that the UK is serious about ramping up military expenditure.

(Reporting by Samuel Indyk; editing by David Evans)