By Harry Robertson
LONDON (Reuters) – The pound fell slightly on Thursday as currency markets remained focused on U.S. President Donald Trump’s threats of tariffs in his early days back in the White House.
Sterling was last down 0.14% at $1.2311. It remains around 1.1% higher since the start of the week, reflecting investor relief that Trump has concentrated on other policy areas rather than tariffs since his inauguration on Monday.
The euro was marginally higher against the pound at 84.55 pence.
Britain’s currency slid at the start of the year even as the country’s bonds fell and yields shot higher, in what analysts said was a worrying breakdown of a relationship that reflected investor aversion to the UK.
Sticky inflation, low growth, and depressed business confidence after Finance Minister Rachel Reeves’s tax-and-spend budget in October have all been blamed for the volatile episode, which was also driven by a sell-off in U.S. government bonds.
“Sterling has independently been repriced since the start of the year,” said Jane Foley, head of FX strategy at Rabobank.
“There’s less news this week but I think the market is facing the fact that there’s going to be less growth and higher inflation than previously imagined.”
Data this week has shown British pay growth stayed strong in the three months to November, although there were signs of labour market weakness, and that borrowing jumped in December as interest costs climbed.
However, bond yields have returned to where they were at the start of the year after weaker than expected readings of underlying UK and U.S. inflation last week.
Sterling rallied sharply on Trump’s inauguration day on Monday after the Wall Street Journal reported a memo, later seen by Reuters, that Trump would hold off on tariffs on day one.
Traders remain on edge, however, given Trump’s habit of suddenly floating plans to ramp up trade levies.
British officials hope the country will avoid the worst of U.S. tariffs, given trade with its ally is broadly balanced and that services exports outpace goods.
(Reporting by Harry Robertson; Editing by Kirsten Donovan)
