London
CNN
–
The British pound is in a slump record low The latest fall comes as investors rebelled against former prime minister Liz Truss’ budget plans. Now, it is enjoying a comeback.
Sterling hit its highest level against the US dollar in 10 months on Tuesday, topping $1.25 for the first time since June 2022. The pound, which has advanced about 3.3% against the greenback since the start of 2023, has been the best-performing currency in advanced economies this year.
The UK currency strengthened on indications that the country’s economy is in a better-than-expected position. Activity is now believed to have expanded by 0.1% in the final three months of last year, barely an increase from earlier estimates. Gross domestic product growth is estimated at 0.3% in January after falling to 0.5% in December.
This resilience raises expectations that the Bank of England will maintain aggressive interest rate hikes despite concerns about the health of the global banking sector. Rising rates can boost the domestic currency as they help attract foreign investors in search of higher returns.
Inflation in UK too It jumped to a 10.4% annual rate in FebruaryEmphasizing the need for the Bank of England to maintain its tight approach.
The pound fell to around $1.03 in September 2022 after the Trust government unveiled plans to boost borrowing while cutting taxes, sparking panic in financial markets that raised fears of a recession in the UK.
The International Monetary Fund predicted in January that the UK economy would contract by 0.6% this year, while all other advanced economies would grow, if slightly.
“There was a lot of pessimism in the value of the pound,” said Francesco Paysole, a currency strategist at ING.
But a sharp pullback in fuel prices and China’s reopening has given some relief to the economic outlook since the start of the year.
“There was a big rerating of growth expectations around Europe, and that affected the UK,” Paysole said.
The euro has also been lifted by this dynamic, gaining 2.3% against the US dollar in 2023. According to Pessol, the pound’s rally has sharpened in large part as the fall in 2022 is more severe.
Both currencies were helped by the greenback’s sharp fall from highs reached last September as fears of a US recession spread.
A lack of clarity about the Federal Reserve’s next steps has restrained the dollar in recent weeks. Concerns about the economy after the failure of Silicon Valley Bank last month have fueled investor speculation that the Fed may halt or halt rate hikes.
Jordan Rochester, a currency strategist at Nomura, said he thinks the pound could hit $1.30 this year and “potentially higher.” But he still sees risks due to uncertainty surrounding the Bank of England’s plans and how the rate hike will feed back through the country’s economy. And Pesol warned that currency fluctuations often become higher when markets are bad, as they are now.
“In a volatile market environment, moves are more intense,” he said.
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