By Stefano Rebaudo
(Reuters) – The pound rose to a new one-week high versus the dollar on Tuesday after jumping the day before after a media report said U.S. President-elect Donald Trump’s advisers were considering applying tariffs only to critical imports.
Trump, who refuted the report on Monday, had vowed to impose tariffs of 10% on global imports into the United States along with a 60% tariff on Chinese goods, increasing expectations for higher inflation and supporting the dollar.
Sterling rose 0.25% to $1.2548, after reaching$1.2562, its highest level since Dec. 31.
It hit $1.2349 last week, its lowest level since April 2024, as the dollar rallied on expectations for strong U.S. growth and increased tariffs.
Analysts also said the combination of the downward revision to British third-quarter gross domestic product data and the news that three members of the Monetary Policy Committee of the Bank of England had voted for an immediate rate cut in December had triggered a new debate at the end of 2024 about how growth and inflation risks would feed into the BoE’s policy decisions.
Traders on Tuesday were pricing in around 56 basis points (bps) of interest rate cuts from the Bank of England this year, down slightly from late last week [IRPR]. The BoE lowered rates by 50 bps to 4.75% in 2024.
“At a time when inflation risks are moderating through most of Europe, UK services inflation has remained particularly sticky”, said Jane Foley, senior forex strategist at Rabobank.
“Layered on top of that are the inflation risks that could stem from the October 30 UK budget,” she said, adding that she expects the euro/sterling to continue bouncing around the 0.83 area in the months ahead as the market looks for more clarity on Britain’s growth and inflation predicament.
Analysts expect higher inflation to delay BoE rate cuts, supporting the British currency.
Sterling was roughly unchanged against the single currency, with one euro trading at 82.99 pence.
Survey data on Monday showed growth in British business activity slowed to a crawl in December, and employers cut staffing at the fastest rate in almost four years.
(Editing by Timothy Heritage)
