Sterling's Resilience Amid U.S. Dollar Weakness

Sterling declined against a robust dollar on Wednesday but remained near a three-year high. It is set for its best monthly performance since November 2023 despite fears over impending U.S. economic data. The pound has outperformed the euro in April, showing potential diversification within the European FX space.

Sterling declined against a stronger dollar on Wednesday, yet hovered close to a three-year peak, poised for its most substantial monthly performance since November 2023. This occurs as markets remain attentive to the imminent release of critical U.S. economic data.

By 1046 GMT, the pound had decreased 0.28% against the dollar, dropping to 1.3368, and dipped 0.2% against the euro, settling at 85.08. The dollar maintained strength amid easing trade tensions, particularly as U.S. President Donald Trump relaxed auto sector tariffs.

Markets continue to grapple with uncertainties, especially as businesses struggle to adapt to daunting tariffs. This contributes to the U.S. dollar's trajectory towards its weakest monthly performance since November 2022, allowing safe-haven currencies like the euro, Swiss franc, and yen to fare better.

Francesco Pesole, an FX strategist at ING, attributes the pound's robust performance against the euro to potential diversification within the European FX space. "Initially, the euro benefited from dollar outflows, but current euro zone macroeconomic and interest rate conditions don't seem promising," Pesole noted. Simultaneously, the UK seeks to mitigate U.S. tariffs impacts through an economic agreement with the Trump administration, aiming to enhance tech investments and remove post-Brexit trade barriers with the EU.

Michael Pfister, an FX analyst at Commerzbank, termed the tariffs a worst-case scenario for the pound, citing the UK's trade deficit with the U.S. Meanwhile, data from mortgage lender Nationwide revealed a 0.6% decline in British house prices in April, marking the steepest monthly drop in over eighteen months.

(With inputs from agencies.)