The turnaround has added 20 cents to the value of the pound since it touched its record low after the Truss government’s “mini”-Budget
(Picture: PA)The pound is on the up on international currency markets, taking it its strongest level against the dollar in six months and back above the $1.23 mark.
It’s a remarkable rally from October lows after the Truss government’s mini-Budget took sterling to the brink of dollar parity for the first time in almost 40 years. It tracks a wider trend for dollar weakness, as the US Federal Reserve looks ready to adopt smaller rate hikes, and is aided by the prospect of the Bank of England simultaneously looking at bigger moves to fight inflation.
Into the BoE’s December meeting next week -- at which the Monetary Policy Committee is expected to raise rates by at least 0.50% -- the pound ticked up 0.1% to $1.2301, leaving it on course for a fourth consecutive day of gains.
The wider rally, taking sterling up 10% in a month, also reflects growing hopes about the UK’s ability to weather a long and shallow recession that may have already started. It comes alongside a sustained, warm response on global markets to the more restrained and considered tax and spending plans of Prime Minister Rishi Sunak and Chancellor Jeremy Hunt, which has added 20 cents to the UK’s currency’s valuation in dollars in just under 10 weeks.
Matthew Ryan, head of market strategy at global financial services firm Ebury, said: “Sterling continued its strong rebound from the depths of the fiscal crisis, as markets become more confident that sane fiscal policies will be followed and the backdrop becomes more friendly to risk taking in general.”
Foward-looking purchasing managers’ indices in particular helped the mood improve, holding up last week better than City experts expected.
Ryan added: “Macroeconomic data releases also continue to raise hopes that the downturn in UK activity may not be as severe or prolonged as some of the worst-case scenarios.”
Meanwhile, concern about the cost of the government’s move to cap domestic energy prices has also eased, while wholesale gas prices have stayed off their highest points of the year, helped by relatively mild weather in autumn and into winter.
There has been support from talk that the UK could also move toward easier access to the EU’s single market via a Swiss-style model of relations with the neighbouring bloc, which remains the country’s biggest single trading partner after Brexit.
Nonetheless, even as the outlook for the country brightens somewhat, analysts were also describing sterling’s rebound as “a dollar story” for the curency pair, known to traders as “cable” after subsea communications networks linking the UK and the US.
Francesco Pesole at Dutch bank ING said: “Rate expectations are unlikely to be stirred this week given the BoE has entered its quiet period and there are no major data releases in the UK. We struggle to see cable extend its rally to $1.25 and beyond, but it will undoubtedly be primarily a dollar/risk sentiment story driving the pair before the BoE meeting”.
