Sterling firmed against the dollar on Wednesday, as investors were relieved the United Kingdom was not in the crosshairs of U.S. President Donald Trump’s latest tariff escalation, while upbeat economic data also buoyed sentiment.
The U.S. doubled duties on steel and aluminium imports to 50% but exempted the UK. Analysts were sceptical, however, about what room there might be to do away with the existing 25% duties through the agreement signed last month.
“UK steel exports were supposed to incur no tariff, so Trump’s abrupt change may cause UK negotiators to question the value of ‘agreements’ made,” said Paul Donovan, chief economist at UBS Global Wealth Management.
The mood among global investors was one of caution ahead of an anticipated call between Trump and his Chinese counterpart which could determine where the world’s two largest economies stand with regard to trade relations.
Wednesday is also the deadline the Trump administration has given its trade partners to offer their best deals to avoid steep levies on goods imported into the U.S..
Sterling tiptoes lower; 40-year gilt auction, BoE speakers in focus
The pound firmed 0.12% and was last at $1.353, while against the euro it was last flat and bought 84.11 pence by 0947 GMT.
Sterling has outperformed the greenback alongside its developed market peers, including the euro and Swiss franc , as Trump’s erratic policies have encouraged investors to look outside the U.S. for opportunities and the UK is perceived to be better insulated from trade uncertainty.
Tuesday’s gilt auctions also indicated strong investor demand for the country’s longer-dated bonds, a stark contrast to similar sales in the U.S. and Japan last month.
Still, investors will closely monitor how Finance Minister Rachel Reeves goes about funding the government’s proposed infrastructure plans. Yields on 30-year and 40-year gilts were up about 2 basis points each on Wednesday.
Meanwhile, a survey showed Britain’s services sector returned to tepid growth last month, with the Bank of England expecting deteriorating business confidence as a consequence of global uncertainty to weigh on growth in the coming months.
Traders are pricing in that the central bank will lower borrowing costs by about 37 basis points by the end of this year, according to data compiled by LSEG.
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