Sterling Hits Five-Week High Against Euro After U.S.-China Tariff Deal

Sterling Surges to Five-Week High Against Euro as U.S.-China Tariff Reduction Boosts Risk Appetite

Sterling surged to a five-week high against the euro following a significant development in global trade, as the U.S. and China reached an agreement to reduce tariffs substantially. The 90-day tariff reduction, which brings tariffs down to 10%, has improved investor risk appetite, as it signals easing trade tensions between the world’s two largest economies. This positive sentiment benefited risk assets like the British pound, which saw a sharp rise.

The pound was further supported by an improved outlook for U.K. trade as investors grew more confident in the country's economic future. The Bank of England's cautious approach to interest rates, with the central bank maintaining a conservative stance on reducing rates, also added to the bullish sentiment surrounding sterling. As a result, sterling appreciated to 0.8421 pounds per euro, marking a four-day low for the euro, with ING analysts forecasting potential for the euro to break above the 0.8400 level.

However, the momentum for sterling against the euro wasn’t reflected against the U.S. dollar. Despite the tariff deal, sterling dropped to a four-week low against the dollar, falling to $1.3162. Analysts believe the dollar's strength, coupled with ongoing concerns about global trade, may continue to weigh on the pound’s performance against the greenback.

Looking ahead, global trade negotiations and the Bank of England's policies will play crucial roles in shaping sterling's future direction. While the U.K. faces challenges in its dealings with the dollar, the positive trade outlook and stable fiscal policies provide support for the currency's recovery against the euro.