Sterling set for first month-to-month rise since September

LONDON, Feb 28 (Reuters) – The pound eased on Friday as nervy traders flocked to the greenback in mild of rising pessimism over the outlook for the U.S. economic system as President Donald Trump’s tariffs are about to return into drive.

That mentioned, sterling was nonetheless heading for its first month-to-month rise since September, pushed much less by optimism over the UK economic system and extra by the prospect of UK charges taking longer to fall than these elsewhere.

Sterling was down 0.2% on the day at $1.259, having risen 1.6% in February, essentially the most in a month since September’s 1.9% acquire.

Merchants anticipate each the Federal Reserve and the Financial institution of England to ship round two price cuts this 12 months, with a rising likelihood of a 3rd. They presently imagine U.S. charges will finish the 12 months at 3.73%, in contrast with 3.8% in Britain, in accordance with the interest-rate futures market.

The distinction is starker with the European Central Financial institution, which is predicted to chop euro zone charges at the least three extra occasions earlier than the 12 months is out, which would depart charges beneath 2%.

The euro has additionally been beneath broader strain after Trump threatened to use a 25% tariff to European Union exports of automobiles and different items. The potential for U.S. duties on EU items, along with these on Mexico, Canada and China, has been on the playing cards for a while, however now seems to be nearer.

This week, the euro has fallen to its weakest towards the pound since mid-December, having misplaced over 2.5% since Trump took workplace on January 20.

On Friday, it was roughly flat on the day at 82.56 pence.

British Prime Minister Keir Starmer visited Trump in Washington for the primary time on Thursday to debate a spread of matters, together with peace in Ukraine, in addition to European spending on defence and tariffs.

The UK is much less uncovered to the chance of tariffs than the EU, provided that it boasts a commerce surplus with the U.S. and most exports are within the type of companies.

Trump and Starmer mentioned they’d mentioned a commerce deal and the U.S. president advised Britain might be spared.

“Sterling might proceed to outperform within the quick run, notably towards the euro and riskier currencies, though rather a lot is already priced in,” BBVA strategists mentioned in a notice.

The subsequent danger occasion for currencies is the discharge of the U.S. private consumption expenditures index (PCE), which displays broad client worth pressures and will show key in setting expectations for the place U.S. rates of interest could head within the first half of the 12 months.

(Reporting by Amanda Cooper; Enhancing by Andrew Cawthorne)