With the Bank of England predicted to continue increasing interest rates, the pound has surged and is now recognized as the best-performing currency among developed economies this year.
Sterling has experienced a 2.3% gain against the dollar, surpassing all other major economies in the G10 group. In the past month alone, the pound has increased by 3% against the dollar, even outperforming currencies in emerging economies, despite concerns regarding the UK economy’s future.
Francesco Pesole, an FX strategist at ING, has noted that the pound is expected to remain the strongest currency in Q1 2023, having gained 2.5% against the dollar.
The market’s belief that the Bank of England will keep raising rates, combined with the improved economic outlook, is said to be contributing to the pound’s success. Traders predict a 75% chance of a 0.25% interest rate increase in May and a 52% chance of another hike of the same amount in June.
Meanwhile, a decline in the US inflation measure suggests that the Federal Reserve may be close to concluding its program of aggressive interest rate rises. The pound has fallen by 0.1% against the dollar today, sitting just below $1.24, but has gained 0.2% against the euro, which is worth slightly less than 88p.
