Sterling and Trump's Tariffs: Navigating Market Turbulence

The British pound stabilizes after volatility induced by U.S. tariffs under President Trump. Prime Minister Keir Starmer seeks economic partnerships to lower trade barriers. Despite a baseline tariff, the pound struggles amidst global market chaos. Concerns over fiscal rules arise as gilt yields rise significantly.

The pound steadied on Tuesday following a period of volatility sparked by U.S. President Donald Trump's import tariffs, which have elevated global recession risks. Prime Minister Keir Starmer intends to improve economic ties with the U.S. and reduce trade barriers with other key nations post-tariffs.

Despite a baseline tariff of 10% for UK exports to the U.S., sterling remains pressured amid market turmoil. While economists foresee negative growth impacts from the tariffs, the longer-term effects on UK inflation and borrowing are uncertain. Notably, 30-year UK gilt yields surged, echoing market instability from Liz Truss's 'mini-budget'.

FX brokerage Monex highlights concerns about fiscal rule volatility affecting market confidence and bond yields. Speculation surrounds the Bank of England's likely rate cut in May to mitigate tariff impacts. Sterling, a 'high beta' currency, faces pressure as risk-averse investors exit volatile assets.

(With inputs from agencies.)