Sterling highest since October 2021

The pound climbed above $1.374, its highest level since October 2021, as it benefited from a weakening US dollar.

The dollar faced downward pressure due to growing concerns over the Federal Reserve's independence. Speculation intensified that President Trump might soon appoint a successor to current Fed Chair Jerome Powell, which stoked fears of potential shifts in monetary policy that could lead to earlier-than-expected rate cuts.

In the UK, the Bank of England (BoE) took a more dovish stance, with officials signaling that further rate reductions were likely. Governor Andrew Bailey highlighted signs of slack in the UK labor market, pointing to decelerating wage growth and rising inactivity, both of which contributed to the BoE’s more cautious approach.

Deputy Governor Ben Broadbent, too, signaled concerns about the economic outlook, noting that these factors led to his recent vote for a rate cut, and warned that inflation could dip below the BoE’s target in the coming months. At the same time, developments in global geopolitics played a role in improving market sentiment.

The ongoing ceasefire between Israel and Iran helped to reduce fears of a broader regional conflict, easing concerns over potential disruptions to global energy supplies. This calming of tensions not only reduced inflationary pressures but also boosted investor confidence, further supporting the pound’s rally.