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17/07/24
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GBP Needs More Than High Rates in UK To Remain Strong
On Wednesday, the pound reached its highest level in a year, driven by investors looking for better returns as global interest rates begin to drop. Strategists however say it would take more than high rates for the pound to retain its performance.
Wednesday’s data showed UK inflation was more stubborn than many anticipated, leading to traders reducing their bets on a rate cut in August and pushing the pound to higher than $1.30 for the first time since July 2023.
Unlike the dollar and the euro, the pound hasn’t been hit by domestic politics, but was rather boosted by a new government that fueled hopes it would be able to stop years of volatile UK markets and unpredictable policies.
British growth in has also started improving. The International Monetary Fund on Tuesday increased its estimate of Britain’s economic growth to 0.7% for the year, up from 0.5% in its April global forecasts.
At the core of this latest move higher is the belief that UK interest rates would take longer to drop than elsewhere.
Many big central banks have begun reducing rates. Although the U.S. Federal Reserve and the Bank of England have not started yet, the most recent indications are that U.S. rates will start falling in September.
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