LONDON - The British pound experienced a slight decline on Thursday, with markets reacting to U.S. President Donald Trump's recent tariff threats.
Sterling was last recorded at $1.2311, down 0.14%. Despite this drop, it remains approximately 1.1% higher since the beginning of the week, indicating some investor relief as Trump has shifted focus away from tariffs following his inauguration.
In comparison, the euro saw a marginal increase against the pound, trading at 84.55 pence.
At the start of the year, the pound fell even as UK bonds declined and yields increased, a trend attributed to investor aversion towards the UK amid persistent inflation, stagnant growth, and low business confidence following Finance Minister Rachel Reeves's tax-and-spend budget in October. This volatility was further exacerbated by a sell-off in U.S. government bonds.
Jane Foley, head of FX strategy at Rabobank, noted, "Sterling has independently been repriced since the start of the year," highlighting market adjustments in light of anticipated lower growth and higher inflation.
Recent data indicated strong pay growth in the UK for the three months ending in November, though signs of labor market weakness emerged alongside increased borrowing in December due to rising interest costs.
Bond yields have returned to their early-year levels following weaker-than-expected inflation readings in both the UK and the U.S. last week. The pound saw a sharp rally on Trump's inauguration day after reports suggested he would delay tariff implementation.
However, traders remain cautious, mindful of Trump's unpredictable approach to trade policy. British officials are optimistic about mitigating the impact of potential U.S. tariffs, given that trade with the U.S. is relatively balanced and services exports exceed goods.