London– GBP The U.S. dollar traded above $1.3 for the first time in a year on Wednesday, as investors pinned their hopes on a period of pro-growth policies and political stability under a newly elected Labor government.
Sterling was up 0.49% at $1.3027 at 9:55 a.m. London (4:55 a.m. ET), hitting its highest level since July 19, 2023.
Data released earlier on Wednesday showed that British inflation reached the Bank of England’s 2% target for the second consecutive month.
However, the inflation report slightly reduced market bets on a rate cut by the central bank in August, as key services reports were sticky. Higher interest rates tend to increase the attractiveness of a currency.
Meanwhile, GBP/USD rose 0.07% EUR,1.1908.
Analysts said the pound was also supported by Labour’s recent landslide victory in parliament.
Joe Tuckey, head of foreign exchange analysis, said: “Strong UK economic data in recent weeks, coupled with the relatively stable UK politics in the ‘safe haven’, have made the possibility of an imminent interest rate cut in August diminishing, and the pound has also gained ground.” A steady rise.
GBP/USD.
“This morning’s solid inflation reading of 2%, slightly above expectations, may only slightly reduce the likelihood of a rate cut in August and may support recent GBP strength.”
Jane Foley, head of foreign exchange strategy at Rabobank, said in an interview with CNBC’s “Squawk Box Europe” that the pound is the only currency among the G10 developed economies to outperform the US dollar so far this year, and it was also the second-best performing currency last year. .
Foley added that this comes against the backdrop of GBP/USD trade volumes falling to record lows in September 2022 during the previous UK government’s “mini-budget crisis”.
“The pound is starting to find its footing again and I think there’s a lot of optimism now that maybe with more political stability we can start to get a better tone on the investment side,” Foley told CNBC.
“We’ve seen (new finance minister) Rachel Reeves make the right noises about trying to boost growth, trying to get the private sector involved to boost investment and productivity. So so far (there have been) the right Sound, (and) maybe it’s the honeymoon period now, we’ll have to wait and see.
She added, “There does seem to be a view that as long as politics remains relatively dull, and to be fair, that was the case last year, investment growth will come back.”
Yields on British government bonds, known as gilts, generally edged higher following the CPI release. The 2-year bond yield rose 2 basis points to 3.995%, and the 10-year bond yield rose 1 basis point to 4.068%. Yield is inversely proportional to price.
Overall, gilt yields have been lower since Labor’s victory on July 4.
About The Author
