The pound held steady vs the dollar

The pound held steady and was nearing its biggest monthly gain against the dollar since the fall. Meanwhile, the sterling advanced nearly 3% against the dollar in March and is heading for an eight-week peak.

This week’s statistics showed that food inflation in the UK reached a record high of 17.52% in March. The shortage of certain food products contributed to the increase. But overall, at more than 10%, headline inflation in Britain shows no sign of abating.

Sterling was last up 0.43% against the dollar at $1.2362, while against the euro, it was up 0.12% at 87.98 pence. The pound is on course for its biggest monthly gain since a 5.22% advance in November.

The BoE governor said the central bank might need to raise rates again after UK inflation hit a surprise high of 10.42% in February and food inflation hit a record high in March.

The BoE showed on Wednesday that the number of mortgages approved by UK lenders was higher than expected in February, suggesting that the housing market pullback may be levelling off.

BoE’s monetary policy expectations shifted sharply in March

In the first week of the month, markets were pricing in the likelihood that UK rates would peak at 5% later this year – which would mean a rate hike of another 75 basis points at the time.

Markets have shown traders think rates will hit 4.53% by September – meaning the BoE will hike by another quarter of a point at most.

And in this environment of weakening expectations, the pound rose against the dollar. Sterling’s strength is due less to a variety of expected interest rate data and more to typical trust assets controlled by investors, such as the dollar, as fears of turmoil in the banking sector eased.

The spread between 10-year yields and 10-year US Treasuries will rise for the first month since March, giving the pound a significant advantage.