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The British pound recently hit a record low due to concerns over former Prime Minister Liz Truss’s budget plans, but it’s making a strong comeback. Sterling reached its highest level against the US dollar in 10 months, showing a 3.3% increase since the beginning of the year and outperforming other developed economies.
The UK economy’s resilience, with an estimated 0.1% growth in the final quarter of last year and a 0.3% GDP growth in January, is boosting expectations for aggressive interest rate hikes by the Bank of England. Inflation spiked to 10.4% in February, highlighting the need for the central bank’s tough approach.
Recent developments, such as lower energy prices and China’s reopening, have improved economic outlooks and supported the pound’s rally. The euro has also seen gains against the US dollar, albeit not as sharp as the pound’s due to the severity of its declines in 2022.
As the US dollar weakens amid recession fears, both the pound and euro are benefiting. Uncertainty around the Federal Reserve’s actions, especially after Silicon Valley Bank’s collapse, has added to the dollar’s struggles.
Currency experts anticipate further gains for the pound, possibly reaching $1.30 this year, though risks remain due to uncertainties surrounding the Bank of England’s plans and the impact of rate hikes on the economy. Volatile market conditions may lead to exaggerated currency fluctuations, so caution is advised.
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