Britain's Pound Shows Resilience as It Beats Most Majors This Year, CNN Business Reports
The British pound has staged a remarkable recovery, rising to its highest level against the US dollar in 10 months and outperforming almost all other major currencies this year. The UK currency has gained about 3.3% against the greenback since the start of 2023, with sterling hitting $1.25 for the first time since June 2022.
According to economists, the pound's resurgence can be attributed to indications that the UK economy is holding up better than expected. Activity in the final quarter of last year expanded by 0.1%, up from a previous estimate of no growth at all, while gross domestic product growth in January has been estimated at 0.3% after dropping 0.5% in December.
This resilience has bolstered expectations that the Bank of England will maintain aggressive interest rate hikes despite concerns about the health of the global banking sector. Rising rates can boost the domestic currency by attracting foreign investors searching for higher returns.
However, the pound's recovery is not without its challenges. Inflation in the UK surged to 10.4% in February, underscoring the need for the Bank of England to maintain its tough approach. The International Monetary Fund had previously predicted that the UK economy would contract by 0.6% this year.
According to Francesco Pesole, a currency strategist at ING, "There was a lot of pessimism being priced into the pound." However, recent sharp pullbacks in energy prices and China's reopening have provided some relief about the economic outlook since the start of the year.
Pesole added that the UK's growth expectations were also impacted by a big re-rating of European growth expectations. The euro has risen 2.3% against the US dollar this year, largely due to similar dynamics.
The pound's rally has been sharper in part because its 2022 declines were more severe, according to Pesole. Both the pound and the euro have benefited from the greenback's sharp drop from highs reached last September as recession fears have percolated in the United States.
A lack of clarity around the Federal Reserve's next steps has also restrained the dollar in recent weeks. Investor speculation has increased that the Fed could pause or stop rate hikes due to concerns about the economy following the failure of Silicon Valley Bank last month.
Despite these factors, economists remain cautiously optimistic about the pound's prospects. Jordan Rochester, a currency strategist at Nomura, believes the pound could rise to $1.30 this year and potentially higher. However, he also notes that there are still risks surrounding the Bank of England's plans and how rate rises will feed back through the country's economy.
As Pesole cautioned, "In a volatile market environment, moves are exacerbated."
The British pound has staged a remarkable recovery, rising to its highest level against the US dollar in 10 months and outperforming almost all other major currencies this year. The UK currency has gained about 3.3% against the greenback since the start of 2023, with sterling hitting $1.25 for the first time since June 2022.
According to economists, the pound's resurgence can be attributed to indications that the UK economy is holding up better than expected. Activity in the final quarter of last year expanded by 0.1%, up from a previous estimate of no growth at all, while gross domestic product growth in January has been estimated at 0.3% after dropping 0.5% in December.
This resilience has bolstered expectations that the Bank of England will maintain aggressive interest rate hikes despite concerns about the health of the global banking sector. Rising rates can boost the domestic currency by attracting foreign investors searching for higher returns.
However, the pound's recovery is not without its challenges. Inflation in the UK surged to 10.4% in February, underscoring the need for the Bank of England to maintain its tough approach. The International Monetary Fund had previously predicted that the UK economy would contract by 0.6% this year.
According to Francesco Pesole, a currency strategist at ING, "There was a lot of pessimism being priced into the pound." However, recent sharp pullbacks in energy prices and China's reopening have provided some relief about the economic outlook since the start of the year.
Pesole added that the UK's growth expectations were also impacted by a big re-rating of European growth expectations. The euro has risen 2.3% against the US dollar this year, largely due to similar dynamics.
The pound's rally has been sharper in part because its 2022 declines were more severe, according to Pesole. Both the pound and the euro have benefited from the greenback's sharp drop from highs reached last September as recession fears have percolated in the United States.
A lack of clarity around the Federal Reserve's next steps has also restrained the dollar in recent weeks. Investor speculation has increased that the Fed could pause or stop rate hikes due to concerns about the economy following the failure of Silicon Valley Bank last month.
Despite these factors, economists remain cautiously optimistic about the pound's prospects. Jordan Rochester, a currency strategist at Nomura, believes the pound could rise to $1.30 this year and potentially higher. However, he also notes that there are still risks surrounding the Bank of England's plans and how rate rises will feed back through the country's economy.
As Pesole cautioned, "In a volatile market environment, moves are exacerbated."
The pound's resurgence is a total win-win for the UK - it shows the economy can recover from those dark times in 2022 and people are starting to feel good about their investments. But on the other hand, if I'm being real, it also means the Bank of England is going to keep tightening up those interest rates, making life harder for regular folks trying to get loans or credit. And let's not forget that inflation is still at 10.4% - that's basically like having £1 buying you what used to cost £0.96 back in the day 
. So, it's all about finding a balance between economic growth and keeping costs down for everyone. The thing is, with the global banking sector being as fragile as it is right now, can we really trust that the pound won't take another hit? It's like, we need to be careful here - a little bit of stability in one area doesn't necessarily mean everything else will follow suit 
! I mean, it's not like anyone expected it to do so well, especially after all the doom and gloom about the UK economy last year. But I guess when you've been in a slump for as long as they have, even small signs of recovery can add up quickly 
.
. Maybe we'll even see some of those $1.30 predictions come true 
. I'm just curious though - will this growth be sustainable or just a flash in the pan? Also, what's up with all these interest rate hikes? I feel like they're gonna blow the whole thing 
. But hey, at least it's good for investors, right? 
! 3.3% gain against the US dollar since '23? That's wild! 
. But let's be real, it's not without its risks 
. Still, if the Fed pauses or stops rate hikes, that's a nice boost for sterling too 
. Can't wait to see where this pound rally takes us!
. $1.30? That's like, crazy talk 
. And it's all because of this energy crisis and China reopening 
. I'm not saying the pound won't keep going up, but come on, guys, let's not get too carried away 
. The Bank of England still needs to get that inflation under control 
.
. maybe it's because europe is getting more growth expectations? i don't know about all the rate hike stuff, but i think the pound's rally is pretty cool.
. and yeah, there are risks involved with the bank of england's plans... we'll have to see how that all plays out 
i mean inflation is still at 10.4% but at least the pound is holding strong 
and it's about time! 
.
.
! Jordan Rochester's prediction of $1.30 by year-end is totally doable 
? Let's get some insights 
!