London
CNN
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The British pound crashed with a record low fall by investors against the budget plans by former Prime Minister Liz Trus. Now, it is enjoying a return.
Sterling hit its highest level against the US dollar in 10 months on Tuesday, topped in $ 1.25 for the first time since June 2022. The pound, which has increased about 3.3% versus about Greenback since the beginning of 2023, is the best performing currency in developed economies this year.
The UK currency has been indicated that the country’s economy is better than expected. Activity is now believed that the last three months of the last year have expanded 0.1%, which is from the previous estimate of any previous increase. GDP growth in January is estimated at 0.3% after dropping 0.5% in December.
This flexibility is emphasizing expectations that the Bank of England will maintain an aggressive interest rate despite concerns about the health of the global banking sector. Increasing rates can promote domestic currency as they help attract foreign investors who discover high returns.
Inflation in the United Kingdom also jumped up to an annual rate of 10.4% in February, outlining the need to maintain its difficult outlook.
The Trus government reached near the pound of $ 1.03 in September 2022 after the government unveiled the plan to promote the lending while reducing taxes, which removes panic in financial markets promoting the fears of recession in the United Kingdom.
The International Monetary Fund predicted in January that the UK economy would contract up to 0.6% this year, while all other advanced economies would grow, if only a little.
Francesco Pesol, a currency strategist in ING, said, “There was a lot of pessimism in the pound.”
But the faster pullbacks in the opening of energy prices and the reopening of China have provided some relief about the economic approach since the beginning of the year.
Pesol said, “Europe had a large-trading of hopes of development, and it affected the UK.”
According to Pesol, the Euro has also been lifted by these dynamics, which has increased by 2.3% against the US dollar in 2023 to 2.3% against the US dollar. The pound rally has been fast in a large part.
Both currencies have been assisted by a sharp decline of greenback in the last September as the possibility of recession has been affected in the United States.
The lack of clarity around the next stages of the Federal Reserve has also stopped the dollar in recent weeks. There has been an increase in the speculation of the investor that the Fed rate may stop or stop the hike due to concerns about the economy after the Silicon Valley Bank’s failure last month.
Jordan Rochester, a currency strategist in Nomura, said he feels that the pound could grow to $ 1.30 this year and be “potentially high”. But he still looks at risks in view of the uncertainty around the plans of Bank of England and how increase in rate will return through the country’s economy. And Pesol warned that when the markets are early, the currents are often overdone, as they are now.
“In an unstable market environment, the tricks increase,” he said.
