Pound rises as Trump’s tariff threats spark US asset sales

The pound experienced its most significant two-day surge since December on Tuesday, propelled by investors abandoning the US dollar amid escalating trade tensions between the United States and Europe over Greenland.

The dispute stems from threats made by Donald Trump to impose tariffs from 1 February on imports from the UK, Denmark, Norway, Finland, France, Germany, and the Netherlands.

These measures are contingent on their agreement to US ownership of Greenland, a territory under Danish autonomy.

In response, investors have sold US assets, including the dollar, largely favouring European currencies and gold. Sterling has climbed 0.8 per cent over the past two days, reaching approximately $1.348.

However, it has been outpaced by a resurgent euro, which has emerged as the primary beneficiary of the dollar's decline. The euro was up 0.4 per cent on Tuesday, marking its strongest performance since early November, trading at 87.03 pence against the pound.

Domestically, earlier UK labour market data presented a seemingly grim outlook for employment.

The jobless rate remained near five-year highs in November, and the number of workers on payrolls experienced its sharpest fall since November 2020.

Despite these figures, analysts noted several positive indicators within the report, suggesting that the worst of the economic downturn might have passed.

George Buckley, chief UK and euro area economist at Nomura, said the report also showed redundancies fell, while vacancies and the unemployment rate stabilised, along with the inactivity rate falling.

Wage growth, a key metric for the Bank of England, also slowed to what he called "inflation-target consistent rates".

"This provides a helpful backdrop for the bank to cut rates again – we expect a final move to 3.50 per cent in April, with markets pricing in the risk of earlier/more cuts," he said.

Markets are currently pricing one rate cut from the BoE by mid-year, with a roughly 60 per cent chance of a second by December.