By Greta Rosen Fondahn
(Reuters) – Sterling slid against the dollar but rose against the euro on Monday as the greenback rallied after the U.S. imposed tariffs on Canada, Mexico and China, while comments from President Donald Trump fuelled hopes Britain may be able to avoid levies.
The pound slid 0.66% against the dollar to $1.23135, but was up nearly 0.5% against the euro at 83.225 pence.
Trump imposed duties of 25% on Canada and Mexico and 10% on China at the weekend, calling them necessary to combat the flow of migrants and the illegal drug fentanyl into the United States.
Analysts said currency markets were still trading under the notion that tariffs would be inflationary, and in turn leave U.S. interest rates higher for longer, which lent support to the dollar.
Markets also mulled how a broad trade war could affect global economic growth, as Canada and Mexico already promised retaliatory measures, while bracing for more volatility from tariff-related headlines in the days to come.
“[Tariffs] are likely to harm the U.S. economy the least, by extension leading to a continuation of the long-running ‘US exceptionalism’ theme, and leaving the greenback as the cleanest dirty shirt in the laundry once again,” said Michael Brown, senior research strategist at Pepperstone.
Trump said on Sunday that although Britain was “out of line” when it came to trade he thought it may be able to avoid tariffs, adding of the imbalance: “I think that one can be worked out”.
Conversely, Trump said that tariffs on the European Union would go ahead, but did not say when.
Also in investors’ focus this week, money markets price in a 94% likelihood that the Bank of England will cut rates on Thursday.
Kirstine Kundby-Nielsen, FX analyst at Danske Bank, anticipated a muted market reaction to an “expected” cut.
“More broadly, we expect EUR/GBP to move lower in the coming quarters driven by a relatively hawkish BoE, and a growth pickup in the UK relative to the euro area in 2025,” Kundby-Nielsen added.
(Reporting by Greta Rosen Fondahn; Editing by Amanda Cooper and Angus MacSwan)
