Sterling drops sharply as selloff in risky assets deepens

By Stefano Rebaudo

(Reuters) - Sterling fell against the dollar and the yen, while hitting a seven-month low versus the euro on Friday as China's additional tariffs against the U.S. deepened a selloff in risky assets.

Global stocks have tumbled for a second day after U.S. President Donald Trump's sweeping tariff plans, with the selloff deepening after China said it would impose additional tariffs of 34% on all U.S. goods.

Among major developed market currencies (G10), sterling tends to be more volatile and sensitive to risk sentiment than traditional safe havens such as the Japanese yen, the Swiss franc, or the U.S. dollar. However, Trump's moves have raised questions about the safe-haven status of the greenback.

The pound fell 0.6% to $1.3014. It dropped 1.6% against the yen to a fresh five-week low at 187.92.

Market participants are looking to the possibility of a trade deal between Britain and the United States. British Prime Minister Keir Starmer said earlier this week that talks with the U.S. on such a deal that would help Britain avoid being hit by Trump's import tariffs were "well advanced".

However, investors boosted their bets on future Bank of England rate cuts and are now fully pricing in three 25 basis points in easing moves by year-end, in line with similar market expectations for the European Central Bank.

Sterling hit its lowest level since end-August against the euro at 84.84 pence, down 0.6%, although investors have recently sold the common currency on tariff-related headlines.

Chris Turner, head of forex strategy at ING, mentioned two drivers of the euro's rise against sterling.

"The first is that the euro has better liquidity than sterling and will benefit more as investors leave the dollar," he said.

"The second is that the looming global trade war is proving the greater leveller for rate spreads," he said, referring to past expectations of a slower pace of rate cuts in Britain.

(Reporting by Stefano Rebaudo; editing by Gareth Jones)