Wed, December 07, 2022

Sterling Maintains Its Three-Month High

The Sterling and dollar

Sterling Maintains Its Three-Month High

Despite a tough winter in Britain amid a cost-of-living crisis and rising interest rates, sterling gained on Thursday, nearing a three-month high against a weaker US dollar.

The pound traded at $1.20195, up 0.411% against the dollar. Earlier, it touched $1.2113, the highest level since August 17.

The sterling was up 0.21% versus the euro, trading at 86.101 pence.

Analysts, in minutes of a recent Fed meeting, said a weaker dollar was the main driver of the pound’s rise as investors bet on riskier assets, raising the prospect of a slower rate hike in the US.

The news on Wednesday that the Scottish government will be unable to hold a second independence referendum next year unless it receives approval from the British parliament appears to have had little impact on the U.K. currency.

As things stand, the British government looks weak after the disastrous Truss government. Perhaps part of the recent rise in the GBP is due to politicians focusing on running the country rather than dealing with institutional arrangements.

The vote comes after a data-packed week for the UK, with Wednesday’s surprise purchasing managers’ index (PMI) data showing UK economic activity near its lowest level in 21 months. But the data supported the pound’s rise this week, a bit better than economists polled by Reuters had expected.

Earlier this week, the Organization for Economic Cooperation and Development (OECD) predicted that Britain’s economy would lag behind major peers in 2023. Official data show that the U.K. government borrowed less than expected in October, even though the budget deficit should grow in the coming months.

Following a 75 basis point increase earlier this month, the Monetary Policy Committee is expected to add a more modest 50 basis point increase on December 15, bringing the base rate to 3.50%.

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