UK pound hovers around four-month highs against US dollar

The British pound traded around $1.29, hovering near four-month highs, as it benefited from broad dollar weakness driven by concerns over the US economy and the potential impact of upcoming tariffs.

UK pound hovers around four-month highs against US dollar

The greenback’s softening has been amplified by growing recession fears, trade policy uncertainties, and the political landscape in the US. Sterling, in contrast, is being supported by expectations that the Bank of England will maintain a relatively tight monetary policy for an extended period. Traders have reduced their bets on rate cuts, now only pricing in 52 basis points of cuts for 2025, signaling confidence in the Bank’s approach to tackling inflation and supporting the UK economy. The recent strengthening of the pound also reflects optimism that the UK’s economic resilience may be more robust compared to other major economies. Investors are positioning for a more stable outlook for the UK, despite concerns over global economic growth. One key factor boosting the currency is the ongoing strength of the UK labor market and consumer spending, which have provided a cushion against some of the broader economic challenges.

Focus on GDP data for January

Looking ahead, market participants will pay close attention to the upcoming monthly GDP data for January, due later this week. This data will offer insights into the UK’s economic performance and give a clearer picture of whether the country’s economy continued its recovery into the start of 2025. Any positive surprise in the GDP figures could further support the pound, reinforcing expectations of higher interest rates for longer. Additionally, on March 26, the Office for Budget Responsibility (OBR), the UK’s public finance watchdog, will release its latest economic and borrowing forecasts. The OBR's assessment will be crucial in shaping market sentiment, as it will provide updated projections for government spending, fiscal policies, and the broader economic outlook. Any changes to these projections, particularly regarding borrowing levels and fiscal sustainability, could impact the pound's trajectory in the near term. Investors will be keen to gauge how the government plans to address the growing fiscal pressures and whether further measures will be taken to stimulate growth or reduce the budget deficit.