Sterling Rises on Elevated U.K Interest Rates, Weak U.S Dollar
Sterling traded around $1.29, hovering near four-month highs, supported by broad dollar weakness amid concerns over the US economy and the potential impact of upcoming tariffs.
The dollar is fragile and would be hit by a soft number, ING said in a note on Friday. However, the DXY has already seen its biggest weekly drop since November 2022 (3.5% versus 4.2%) and current long dollar positioning is probably nowhere near where it was in late 2022 after a two-year dollar rally.
On Monday, Sterling is gaining strength from expectations that UK interest rates will remain elevated for longer, with traders scaling back bets on Bank of England rate cuts to 52bps for 2025.
Looking ahead, investors will closely watch monthly GDP data this week for insights into the UK’s economic performance in January. Additionally, on March 26, the Office for Budget Responsibility, the UK’s public finance watchdog, will release its latest forecasts on the economy and borrowing.
GBP/USD has been dragged higher by the fiscal re-rating of Europe. That has not had too much impact on the pricing of the Bank of England easing cycle this year, where the market continues to price around a further 50-60bp of rate cuts, says ING in a note.
Risks look evenly skewed here to the upside with more positive developments out of Europe/ECB re-pricing or to the downside with a refocus on looming tariffs.
Sterling is unlikely to fall much further against the euro but faces a downward correction against the dollar, Convera strategist George Vessey says in a note. The fiscal divergence between the U.K. and Eurozone favors the euro following Europe’s fiscal spending plans, he says.
However, the Bank of England’s more cautious stance on interest-rate cuts compared to the European Central Bank is sterling-supportive, he says. ## Sterling Rises on Elevated U.K Interest Rates, Weak U.S Dollar. #Sterling Rises on Elevated U.K Interest Rates, Weak U.S Dollar#
