Sterling's Surge: Behind Britain's Pound Resilience

Britain's pound holds steady near a three-year high against the dollar, reflecting investor confidence despite U.S. tariffs. With local elections and UK-EU summit in focus, the pound shows resilience amid shifting global trade dynamics. Analysts foresee sterling's firmness but caution potential short-term setbacks.

Britain's pound remained stable against the dollar on Thursday, sustaining its position near a three-year peak as investors continued to avoid the U.S. currency following President Donald Trump's tariffs.

Thursday's survey highlighted the seventh consecutive month of contraction in British manufacturing, underscoring the impact of Trump's tariffs and a tax hike on employers. The pound, last noted at $1.3327, saw minimal daily change but marked a 3.2% rise last month, the largest against the dollar since November 2023.

The dollar's recent turmoil, driven by fluctuating tariff policies, has lowered growth expectations. UBS FX strategists anticipate the pound's resilience against the dollar throughout the year, though short-term declines are possible post-rally.

Attention shifted to Thursday's local elections, offering potential insights into future voting trends. Reform UK Party's anticipated strong performance could challenge the Labour and Conservative parties.

Chris Turner from ING highlighted the upcoming UK-EU summit, predicting a possible new Britain-EU security pact, potentially boosting sterling. Currently, the pound stands at 84.99 pence per euro, showing minimal daily fluctuation but fell 1.5% against the euro last month, the most significant dip since December 2022.

Recent moves away from the dollar have benefited the euro, strengthening it against major currencies. FX research associate Mohamad Al-Saraf from Danske Bank noted that a globally uncertain investment climate might weaken the pound, projecting the euro to reach 88 pence within the next year.

(With inputs from agencies.)