London
CNN
–
The British pound crashed in a recording below Last fall as investors rebelled against budget plans by former prime minister Liz Truss. Now, it is enjoying a comeback.
Sterling hit its highest level against the US Dollar in 10 months on Tuesday, topping 323.
The UK currency was boosted by indicators of the country’s economy developing better than expected. Activity is now thought to have expanded 0.1% in the last three months of last year, down from a previous estimate of no growth. Gross domestic product growth in January was estimated at 0.3% after falling to 0.5% in December.
This stability is what underpins expectations that the Bank of England will continue to aggressively hike interest rates despite concerns about the health of the global economy. Rising rates stimulate the domestic currency as they help attract foreign investors looking for higher returns.
Inflation in the United Kingdom too jumped at an annual rate of 10.4% in Februaryputting an end to the need for the Bank of England to continue its tough approach.
The pair fell to around $1.03 in September 2022 after the Truss Government’s plans to boost borrowing while easing taxes on those in a recession in the United Kingdom.
The International Monetary Fund predicted in January that the UK economy will contract by 0.6% this year, while all advanced economies will grow, if only slightly.
“There is a lot of pelesimism in the pound,” said Francesco Pesole, a currency strategist at ING.
But the sharp pullback in energy prices and China’s opening up have provided relief about the economic outlook since the start of the year.
“There is a big change in growth expectations around Europe, and that is influencing the UK,” Poreele said.
The euro is also lifted by this dynamic, rising 2.3% against the US Dollar in 2023. The rally of the pound is even worse because its 2022 decline is even worse, according to Porese.
Both currencies were helped by the greenback’s sharp drop from highs reached last September as fears of a drought filled the United States.
The lack of clarity around the Federal Reserve’s next steps has also held back the dollar in recent weeks. Investors are counting on the Fed to hold off on rate hikes due to concerns about the economy after last month’s failure of Silicon Valley Bank.
Jordan Rochester, a currency strategist at Nomura, said he thinks the pound will top $1.30 this year and “could go higher.” But he still sees risks given the uncertainty surrounding the bank’s plans and how the country’s economy will continue to grow. And Poreele who warned that the change of currency is often repeated when the markets are steel, they seem now.
“In a volatile market situation in the market, the movements are magnified,” he said.