Analysts are forecasting that Sterling could gain against the euro in the foreseeable future due to the º£½ÇÊÓƵ's lower vulnerability to US President Donald Trump's tariff threats.
Market experts are busy evaluating the potential impacts of Trump's controversial trade policies, with a general consensus suggesting that the º£½ÇÊÓƵ might fare better than the European Union (EU), as reported by .
ING’s head of markets, Chris Turner, commented, "The market expects the EU to have more to lose than the º£½ÇÊÓƵ on tariffs," pointing towards a supportive environment for the pound.
Last week, Trump indicated his intention to levy tariffs on the EU soon, expressing discontent that the bloc "takes almost nothing" from the US.
The US goods trade deficit with the EU is currently €156.6bn, according to EU statistics. In comparison, the º£½ÇÊÓƵ maintains a relatively balanced trade relationship with the US, and despite Trump stating the º£½ÇÊÓƵ was "out of line", he expressed confidence that any issues could be resolved.
With tariffs increasingly affecting global currency market dynamics, analysts anticipate that sterling will become more appealing.
Barclays analysts have noted a heightened recognition of the º£½ÇÊÓƵ's resilience against direct tariffs when compared to the eurozone due to shifting market focus toward trade risks.
Echoing this sentiment, Goldman Sachs analysts also suggested that the pound may benefit from its "relative resilience to an escalation in US tariff risks".
Conversely, many analysts predict that potential tariffs could exacerbate the already faltering EU economy, potentially leading the European Central Bank to implement more drastic rate cuts.
At the start of the year, the pound was just below €1.21, but it fell to nearly €1.18 in mid-January before recovering to €1.20.
"Trade risks continue to pose a challenge for the euro. Moreover, uninspiring local macro releases bolster the case for a more aggressive cutting cycle by the ECB," stated analysts at Barclays.
While sterling may be considered a relatively safe option for currency traders, the dollar is anticipated to maintain its dominance in FX markets for the foreseeable future.
Analysts predict that tariffs will enhance the dollar’s status as a safe haven and intensify inflationary pressures, leading the Fed to reduce rates at a slower pace.
"The increased risk of broader disruption to global trade due to further tariff hikes is a supportive factor for the US dollar," said Lee Hardman, an FX strategist at MUFG.
