Sterling Extends Gains has surged in European trade on Friday, continuing its upward trajectory against a basket of major currencies and reaching a 30-month high against the dollar. This marks the third consecutive session of gains and sets the stage for the largest weekly profit in a month, fueled by robust economic data from the UK.
Recent Price Movements
The GBP/USD pair rose by 0.4% today, reaching $1.3340, the highest level since March 22. During the session, the pair touched a low of $1.3273. On Thursday, the pair closed up 0.55%, building on the momentum created by the Bank of England’s (BOE) policy decisions.
Weekly Performance
So far this week, sterling has gained 1.6% against the dollar, positioning itself for the most significant weekly profit since mid-August. As a result, sterling has emerged as the best-performing G8 currency in 2024, primarily driven by expectations that high UK interest rates will remain in place for an extended period.
Strong Economic Data
Recent data has highlighted the resilience of the UK economy. UK retail sales increased by 1% in August, significantly exceeding estimates of 0.3%. Coupled with positive GDP growth figures for the second quarter, this data reinforces confidence in the strength of the UK economy, leading to reduced expectations for a rate cut by the BOE in November.
Bank of England’s Stance
In its latest policy meeting, the Bank of England opted to maintain interest rates at 5%, as widely anticipated. The central bank emphasized the need for more concrete evidence before considering any rate cuts. This decision was supported by an 8-1 majority vote among the BOE’s members.
BOE Governor Andrew Bailey stated that the central bank requires additional supportive signs before making a decision on interest rates. He expressed optimism regarding the downward trajectory of inflation, which could pave the way for future policy easing.
Interest Rate Dynamics
Following the positive economic data, the likelihood of a rate cut in November has diminished to below 30%, with expectations now focusing on a 40% chance of a rate cut in December. This shift in expectations is particularly noteworthy given the recent changes in interest rates by the Federal Reserve.
US-UK Interest Rate Gap
This week, the interest rate gap between the US and the UK has effectively disappeared after the Federal Reserve’s aggressive 50 basis point cut. Should the Fed pursue more substantial rate cuts compared to the BOE, the interest rate gap may reform in favor of the UK later this year, further supporting sterling.
Conclusion
In summary, Sterling Extends Gains ascent to 30-month highs is a result of strong economic data and a stable outlook from the Bank of England. With the BOE maintaining its stance on interest rates and expectations for continued high rates in the UK
sterling is well-positioned for sustained gains. As the economic landscape evolves
investors will be keenly observing both domestic and international developments that could impact currency performance in the coming weeks.