LONDON: The pound rose slightly on Tuesday after falling to a two-week low the previous day, as investors continued to try to gauge the impact of tariffs on the global economy and looked ahead to Wednesday’s UK spring statement.
Sterling was last up 0.2% at $1.295. The euro slipped 0.1% against the pound to 83.53 pence.
Finance minister Rachel Reeves is expected to lay out spending cuts and lower growth forecasts when she presents the spring statement, which comes during a period of lower-than-expected growth and rising government borrowing costs.
The pound climbed to a more than four-month high last week as the U.S. dollar fell on concerns about the impact of President Donald Trump’s stop-start tariffs on American growth.
Signs the Bank of England remains cautious about further rate cuts amid sticky inflation and global tariff uncertainty have also supported the pound.
Sterling down but set for another weekly gain
However, sterling fell to a two-week low on Monday of $1.2283 as the dollar found a footing on hopes that Trump’s April 2 tariff announcements may be less wide-ranging than initially expected.
It ticked up in relatively subdued trading on Tuesday as investors waited for further signals from the Trump administration on tariffs.
Francesco Pesole, currency strategist at ING, said the spring statement posed a risk for sterling, particularly if UK government bond markets reacted badly to the announcements.
“There’s a very fine line not to unnerve the gilt market,” he said, which could knock confidence in the UK and weigh on the pound.
“If they want to go a bit bigger on spending cuts to prevent that gilt market instability, then the risk is markets will have to reprice growth (lower) quite sharply. If that happens, that’s still a negative for sterling.”
Britain’s benchmark 10-year government bond yield - a proxy for government borrowing costs - was up 3 basis points at 4.75% on Tuesday around its highest in two weeks. Yields move inversely to prices.
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