Sterling drops versus yen, mixed against euro and dollar

By Stefano Rebaudo

Jan 27 (Reuters) - Sterling was little changed versus the euro and the dollar and fell sharply against the yen as investors shifted their focus to economic data and central bank policy meetings later this week.

The pound rallied versus the dollar on Friday as U.S. President Donald Trump suggested a potentially softer tariff stance. However, some concerns about the U.S. policy on trade resurfaced on Monday after the U.S. and Colombia pulled back from the brink of a trade war.

Analysts expect investors to turn their attention away from the U.S. administration strategy, at least temporarily, towards the so-called monetary policy divergence before a raft of central bank policy meetings.

Federal Reserve and the European Central Bank rate decisions are due Wednesday and Thursday, respectively.

Analysts also flagged that the Fed staying on hold and the ECB cutting by 25 basis points are well-priced, but traders will focus on any suggestions about the rate outlook.

Bank of Japan Governor Kazuo Ueda said last week the BoJ will keep raising interest rates as wage and price increases broaden, while central banks worldwide, including the Bank of England, are easing their policy.

Some analysts argued that BoJ's hawkish tone might reflect policymakers' desire not to do anything that would weaken the yen and thus potentially upset Trump.

Sterling was down 0.94% to 192.82 versus the yen GBPJPY=, after hitting 192.51. It rose 1.03% on Friday.

Inflation figures will be released from Japan, Germany and France on Friday, while the Fed's favourite inflation gauge is due in the U.S.

BofA forex strategists said the market is taking a "glass-half-empty approach" to the UK.

"We are still constructive on sterling as we believe that sentiment is asymmetrically skewed, and a lot of the bad news is now priced in, though we concede risks to the downside have risen," they said in a note to clients.

The pound was down 0.1% at $1.2484 GBP=D3 after touching its highest since Jan. 9 at $1.2344 on Friday. It hit $1.2097 on Jan. 13, its lowest since Nov. 2023.

"A wobble is not surprising given recent history, but what is puzzling to us is the precise driver for the surge in UK bond yields, given the void of relevant information and data," BofA strategists said, referring to the UK gilt and pound selloff in early January.

The euro dropped 0.04% to 84.01 pence per euro EURGBP=, after hitting a fresh 2-week low at 83.93. It reached 84.73 on Jan. 21, its highest level in around five months.

(Reporting by Stefano Rebaudo; editing by Mark Heinrich)

((stefano.rebaudo@tr.com))