Sterling emerges as 'defacto safe-haven' currency amid Trump Greenland fallout

Sterling ticked higher on the dollar yesterday, but underperformed the euro, which has once again emerged as effectively a defacto safe-haven currency during the latest bout of Sell America trading.

There has been some talk as to whether Trump’s additional UK tariffs could push Britain’s economy into a recession, but we see this as toying with hypotheticals, as that would assume that the tariffs remain in place for any meaningful period of time, which is not our base case scenario.

We’ve already had a busy week of domestic economic news. Yesterday’s jobs data suggested that Britain’s labour market continues to cool at a steady pace, with unemployment remaining stuck at essentially a ten-year high (excluding the pandemic), while payrolled employment sank by an alarming 43k (the largest drop outside of covid since the data set began in 2014).

Today’s UK inflation report showed an unexpected tick higher in headline inflation (to 3.4% from 3.2%), albeit this is partly due to one-off seasonal price hikes that could prove temporary and were already accounted for in the Bank of England’s projections - food inflation actually came in much softer than they had anticipated.

The MPC will look upon these temporary price increases with caution, and while we still expect no change in rates for at least the next couple of meetings, a spring rate cut still remains a distinct possibility, particularly as energy prices are set to come down in April.