Sterling drops as Trump tariff threats boost dollar

The Pound Sterling extended its losses against the greenback on Tuesday as US President Donald Trump threatened to impose tariffs on computer chips and other industries.

Risk aversion extended for the second straight day, and the GBPUSD retreated from weekly highs of 1.2523, trading at 1.2432, down 0.50%

On Monday, the greenback recovered some ground, and most G8 FX currencies tumbled as Trump crossed the wires. He said he would impose duties on chips, pharmaceuticals, steel, aluminium and copper if not produced in the United States. Therefore, the trade war is on, and traders keep the US dollar bid.

The DXY Dollar Index, which tracks the dollar’s value against a basket of six peers, rose 0.4% at 107.86, a headwind for the GBPUSD. A further extension above DXY’s January 24 peak of 108.19 would exert further pressure on Sterling.

Data-wise, US Durable Goods Orders plummeted -2.2 % MoM in December, missing the 0.6% increase expected by economists and worse than November’s -2% contraction.

Lately, the US Consumer Confidence revealed by the Conference Board slumped to 104.1, below the 105.6 foreseen by analysts. The report showed that all five components of the index deteriorated.

Labour market conditions dropped for the first time since September, as Americans grew pessimistic about future employment prospects.

In the meantime, traders eye the Federal Open Market Committee (FOMC) decision on Wednesday. The Federal Reserve is expected to keep rates on hold as it buys time to assess the impact of Trump 2.0’s presidency and as prices remain stickier than expected.