British pound now outperforms all other major currencies

Julia Horowitz CNN

British pound crash lowest record Last fall, investors resented former Prime Minister Liz Truss’ budget plans. Now it is enjoying a comeback.

The pound hit a 10-month high against the dollar on Tuesday, breaking above $1.25 for the first time since June 2022. developed countries this year.

The UK currency was boosted by signs that the country’s economy is holding up better than expected. Activity is now believed to have expanded him by 0.1% in the last three months of last year, up from previous estimates of no growth at all. Gross domestic product growth in January is estimated at 0.3% after he fell 0.5% in December.

This resilience has fueled expectations that the Bank of England will maintain its aggressive rate hikes despite concerns about the health of the global banking sector. Rising interest rates can boost the domestic currency as it helps attract foreign investors looking for higher returns.

Britain’s inflation In February, the annual rate jumped to 10.4%underscores the need for the Bank of England to maintain its tough approach.

pound turnaround

In September 2022, the pound plummeted to nearly $1.03 after the Truss government announced plans to borrow more while cutting taxes, sparking panic in financial markets and increasing fears of a UK recession.

The International Monetary Fund predicted in January that the UK economy would contract by 0.6% this year, while all other advanced economies would grow slightly.

“There was a lot of pessimism priced into the pound,” said ING currency strategist Francesco Pesore.

However, the sharp drop in energy prices and the resumption of activity in China have softened the economic outlook somewhat since the beginning of the year.

“Across Europe there has been a significant reassessment of growth expectations, which has had an impact on the UK,” Mr Pessol said.

The euro also rose on these dynamics, rising 2.3% against the US dollar in 2023. According to Pesole, the pound’s rally has been sharper mainly due to a more severe fall in 2022.

Both currencies were buoyed by a sharp drop in the dollar from its highs reached last September as recession fears permeated the United States.

Lack of clarity about the Federal Reserve’s next steps has also held back the dollar in recent weeks. Investor speculation that the Fed may pause or stop rate hikes has been fueled by economic concerns following last month’s Silicon Valley bank failure.

Nomura Securities currency strategist Jordan Rochester said he believes the pound will rise to $1.30 this year and “could go higher”. But he still sees risks, given the uncertainty surrounding the Bank of England’s plans and how higher interest rates might affect the country’s economy. He warned that currency volatility is often excessive when the is volatile.

“In volatile market conditions, the move gets worse,” he said.