British Pound Quietly Beats Every Other Major Currency

After Prime Minister Liz Truss drove the British pound to record lows last year, market watchers thought the currency would not recover for some time. Now the pound is enjoying a comeback, hitting its highest level against the US dollar in 10 months on Tuesday, topping $1.25 for the first time since June 2022. 

From the start of 2023, the UK currency has clawed back 3.3% against the greenback, quietly making it the best-performing currency among developed economies this year. As for the US dollar, a lack of clarity around the Federal Reserve’s next steps has restrained it in recent weeks.

The pound has been lifted by indications the country’s economy is faring better than expected. Activity expanded 0.1% in the final three months of last year, an increase from a previous estimate of zero growth.

This show of strength is boosting expectations that the Bank of England (BOE) will remain aggressive with its interest rate hikes in spite of worries about the state of the global banking sector. UK inflation leapt to an annual rate of 10.4% in February, underlining the need for the BOE to maintain its tough approach.

The IMF predicted in January that the UK economy would contract by 0.6% this year, while all other advanced economies would grow. However, the sharp pullback in energy prices, together with China’s reopening, have provided some relief about the economic outlook for the remainder of the year.