Sterling drops versus dollar, flat against euro, awaits data

By Stefano Rebaudo

(Reuters) – Sterling rose against the dollar and was little changed versus the euro on Wednesday, with investors focused on the market reaction to U.S. President-elect Donald Trump’s tariff promises.

Markets will closely watch the U.S. economic data later in the day, which could affect the Federal Reserve’s easing path.

The greenback fell to a one-week low as investors grew cautious about Trump’s tariff pledges 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 flagged that expectations for a hawkish stance by the Bank of England and possible U.S. tariffs against the euro area will be supporting the pound versus the single currency.

However, if the trade conflict escalates, there are risks for the British currency as the global economy will slow down.

The BoE’s Clare Lombardelli said on Wednesday that Trump’s proposed tariffs would also pose a risk to growth in the UK.

Sterling was flat versus the single currency at 83.41 pence per euro.

With one-week deposit rates at 4.75%, the highest in the G10 space, sterling may be deriving inflows as the market makes up its mind about the speed and magnitude of Trump’s policy agenda,” said Chris Turner, head of forex strategy at ING.

The BoE’s Lombardelli made the case for only gradual reductions in interest rates on Monday.

On the UK, we fundamentally remain convinced that the UK economy would have difficulty supporting the terminal rates as currently priced by the market, like the euro zone, as both are faced with similar structural weakness and low growth,” U.S. asset manager Candriam said in a note.

Money markets priced in a BoE rate at around 4% by end 2025, while discounting an ECB deposit facility rate below 1.8% from the current 3.25%.

(Reporting by Stefano Rebaudo; editing by Philippa Fletcher)