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The British pound faced a record low last fall due to former Prime Minister Liz Truss’ budget plans, but it has since made an impressive comeback. Recently, the pound reached its highest level against the US dollar in 10 months, surpassing $1.25 for the first time since June 2022. It is now up by 3.3% against the greenback this year, making it one of the best-performing currencies among developed economies.
The UK economy’s resilience has played a significant role in this recovery, with better-than-expected growth highlighted in various economic indicators. This growth trajectory has led to optimism about aggressive interest rate hikes by the Bank of England, boosting the pound further.
Moreover, an annual inflation rate of 10.4% in February has emphasized the need for the Bank of England to maintain its tough stance on monetary policy. These factors have propelled the pound back up after it plunged to $1.03 in September 2022.
Currency strategist Francesco Pesole from ING noted that recent developments, such as falling energy prices and China’s economic rebound, have positively impacted the UK’s economic outlook. This, in turn, has contributed to the euro and the pound’s stronger performance against the US dollar in 2023.
While there are uncertainties surrounding the Bank of England’s future plans and their impact on the UK economy, experts like Pesole and Jordan Rochester foresee further gains for the British pound. Rochester even predicts a rise to $1.30 or potentially higher. Despite potential risks, the overall sentiment is optimistic about the pound’s continued recovery.
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