Pound rises to highest level against the dollar in two months as investors grapple with
The pound rose to its highest level against the US dollar for more than two months yesterday as investors grappled with the outlook for interest rates on both sides of the Atlantic.
Sterling edged up as much as 0.6 per cent to $1.3457 – its strongest position against the greenback since mid-October – after suggestions rates may be cut faster in the US than the UK next year.
Lower rates tend to weaken currencies while higher borrowing costs give them a lift.
The Federal Reserve is expected to deliver at least two more rate cuts in the US next year, putting the dollar under pressure given investors have for a long time doubted it would go so far.
The Bank of England, meanwhile, cut interest rates to 3.75 per cent last week.
But the five to four vote in favour showed the decision was on a knife-edge and with inflation still well above the 2 per cent target at 3.2 per cent, doubts are creeping in as to how fast it will act next year.
Pound surge: Sterling edged up as much as 0.6% to $1.3457 amid suggestions rates may be cut faster in the US than the UK next year
Speaking after last week’s rate cut, Governor Andrew Bailey said the overall trend for interest rates was down but warned this might not happen as quickly as some analysts expect.
A slow path of rate cuts would disappoint borrowers pinning their hopes on cheaper mortgages as the economy slows under Labour.
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