The British pound reached its highest level against the US dollar in a year on Wednesday. This happened because investors believe UK interest rates will stay high for a while. New data showed that inflation in the UK is still higher than expected, causing traders to think interest rates won’t drop in August. As a result, the pound went above $1.30 for the first time since last July.
The pound’s value increased due to hopes that the new Labour government will bring economic stability. Higher interest rates in the UK attract more foreign investment, which raises the demand for the pound, pushing its value up compared to other currencies.
Inflation in the UK stayed steady in June, with the main rate at the Bank of England’s target of 2%. However, inflation in services stayed at 5.7%, and core inflation, which excludes volatile items like energy, was at 3.5%. While some countries like Switzerland, Sweden, and Canada have cut rates, the Bank of England and the US Federal Reserve have not.
The International Monetary Fund (IMF) raised its economic growth forecast for the UK to 0.7% this year, from 0.5% in April. However, the IMF warned that persistent inflation might keep interest rates high for longer.
Kit Juckes, head of FX Strategy at Societe Generale, expressed doubts about the pound’s rally lasting but noted the stability brought by the new UK government. Uncertainties in global markets, such as political issues in France and the US, have also contributed to market jitters.
On Wednesday, King Charles presented Prime Minister Keir Starmer’s economic plans, focusing on new homes and infrastructure projects. Emma Wall from Hargreaves Lansdown said that the combination of steady inflation and ambitious reforms led to the pound’s rise. She added that the future of this rally depends on upcoming economic data and the Bank of England’s interest rate decision on August 1.
For more details, you can refer to the original article by BBC News.
https://www.bbc.com/news/articles/c80e9k4wegno