Pound continues rally against weaker dollar

The pound (GBPUSD=X) has staged a recovery in the money markets after plummeting in the wake of last year’s mini-budget and is the world’s best performing currency this year.

The rally continued this week with the sterling gaining 0.4% against the dollar, to trade at $1.24.

Markets have rallied behind sterling as investors gained renewed confidence in the currency as the latest economic data revealed that the UK avoided a recession — even if narrowly — and GDP growth rates were revised higher, meaning the country’s economy actually grew over the final three months of 2022.

Another driver of the pound’s rally has been a weaker dollar, as the American currency eased on expectations that the US Federal Reserve is getting closer to ending its rate hike cycle.

However, Christopher Lewis at FX Empire, warned that things can change quite suddenly.

We have to ask questions as to whether or not the US dollar is “going to strengthen or weaken, and of course we have to determine whether or not risk appetite will still be out there,” he said.

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“After all, there are a lot of different moving pieces at the moment, but we also need to keep in mind that there are multiple reasons why the British pound or the US dollar [might] strengthen,” he added.

Sterling hit an 11-month high of $1.25 against the dollar last week, in a year where it has has outperformed its peers as it secured and overall climb of 3.5%.

Against the euro, it was a different story with the pound (GBPEUR=X) mostly flat or only securing marginal gains against the European currency.

This Tuesday the pound was trading flat at €1.14 as positive German trade data aided the euro, despite inflation fears across the Euro area causing some damage to the currency’s performance.

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