Sterling Climbs to 12-Week High Amid Weaker Dollar and Positive UK Economic Signals
LONDON, Dec 23 (Reuters) – The British pound surged to its highest level in nearly three months against a broadly weaker U.S. dollar on Tuesday, reflecting cautious optimism among investors about the UK’s economic outlook despite ongoing inflation concerns.
Sterling appreciated by 0.42% to $1.3517, marking its strongest performance since October 1. This extended gains recorded last week and positions the currency for its best monthly performance in four months. Year-to-date, the pound has risen approximately 8%, with more than a 2% increase recorded in December alone.
Investor Sentiment Bolstered by Economic Data
Market participants are responding to the latest economic data from the Office for National Statistics (ONS), which showed that the UK economy expanded 0.1% during the July-to-September quarter. While modest, this growth was consistent with earlier estimates. Additionally, revised figures pointed to a significant upward revision in business investment, providing traders with a more positive takeaway amid broader economic challenges.
Neil Wilson, UK investor strategist at Saxo Markets, noted, “Sterling-wise looks to be some improving sentiment towards the outlook for the economy even if it looks a bit miserable in the trenches right now.” He added that the upward revision in business investment figures was a key driver behind the market’s positive response.
Pound Benefits Despite Uncertainties
The pound’s recent strength comes despite persistent inflationary pressures in the UK which have influenced monetary policy decisions. Following last Thursday’s Bank of England (BoE) rate cut—which was widely anticipated—the pound climbed by 1%. However, policymakers at the BoE emphasized that any further rate reductions would be unlikely as inflation remains elevated relative to other major economies.
On the fiscal front, British Finance Minister Rachel Reeves has requested the country’s budget watchdog to publish its forthcoming economic and public finance forecasts on March 3. However, the watchdog will not be assessing progress against fiscal targets at that time. Reeves’ recent budget announcement, which included increased fiscal flexibility, helped ease negative market positioning into the holiday period.
Wilson commented, “Positioning was kind of negative going into the Budget, so as that delivered (albeit dubious) extra fiscal headroom, we have seen some relief rally since.”
Global Currency Movements and Other Markets
While sterling’s rise was notable, the spotlight for traders on Tuesday was a firmer Japanese yen. The yen gained strength following the strongest warning yet from Japanese authorities signaling readiness to intervene in currency markets, as the yen hovered near lows against major currencies, including the pound. Sterling was close to reaching its highest level against the yen since 2008. Against the euro, sterling also gained 0.1%, trading at 87.29 pence.
Looking Ahead
As the year draws to a close, investors are closely monitoring inflation trends, monetary policy signals from the Bank of England, and ongoing geopolitical developments that could influence currency markets. The pound’s performance reflects a delicate balance between cautious economic optimism and concerns over inflationary pressures.
Reporting by Lucy Raitano in London; Editing by Frances Kerry
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