Pound Resilience Amid Trump Tariff Threats

The pound showed resilience despite volatility caused by U.S. President-elect Donald Trump's tariff threats against Canada, Mexico, and China. Sterling bounced back after initial losses, while other currencies like the Canadian dollar and Mexican peso saw declines. Experts say the UK's minor trade surplus with the U.S. may shield it.

The pound showed remarkable resilience on Tuesday, undeterred by President-elect Donald Trump's threats of increased tariffs targeting Canada, Mexico, and China, which stirred currency market volatility.

After initially losing ground due to its status as a risk-sensitive currency, sterling regained composure, ending slightly higher at $1.2587. The euro remained stable against the pound. Trump's announcement of a 25% tariff on Canadian and Mexican imports linked to drug issues and migrant crossings, along with an additional 10% tariff on Chinese goods, initially boosted the dollar index but later retracted gains. Meanwhile, the Canadian dollar and Mexican peso dropped by 1% and 2% respectively.

Currency strategist Derek Halpenny from MUFG highlighted Britain's modest trade surplus with the U.S., suggesting it might escape major tariff repercussions. However, he warned that eurozone-focused tariffs could impact Britain indirectly, exacerbating risks of pound depreciation if the trade tensions escalate and global growth weakens.

(With inputs from agencies.)