The British pound surged past the $1.30 mark on Tuesday, reaching its highest level in over four months, as expectations grew that UK interest rates would remain elevated for an extended period.
Sterling tops $1.3 for first time since November
The Bank of England is widely expected to keep rates steady at 4.5% this week, with traders anticipating a slower pace of rate cuts compared to the U.S. Federal Reserve. Market pricing suggests the BoE will lower rates by just 51 basis points by the end of the year, while the Fed is expected to ease by 60 basis points, reinforcing the relative strength of the pound.
Optimism persists
Despite last week’s data revealing an unexpected contraction in the UK economy, optimism persists that planned infrastructure investments and targeted government spending will provide a much-needed boost to economic activity. In a bid to navigate global trade tensions, Prime Minister Keir Starmer stated that his administration would explore all possible policy responses to the tariffs imposed by U.S. President Donald Trump on steel and aluminum, underscoring a flexible and strategic approach to trade negotiations.
USD weakens
Meanwhile, the U.S. dollar weakened amid rising concerns over economic growth and trade uncertainty, adding further momentum to the pound’s rally. Investor sentiment has been cautious, with fears that aggressive U.S. trade policies could weigh on global demand and slow economic activity. The combination of BoE policy expectations, fiscal support measures, and trade-related uncertainty has positioned the pound for further strength in the near term.
