London– GBP The U.S. dollar traded above $1.3 for the first time in a year on Wednesday, as investors pinned their hopes on a period of pro-growth policies and political stability under a newly elected Labor government.
Sterling was up 0.5% against the dollar at $1.303 at 1:04 p.m. London (8:04 a.m. ET), hitting its highest level since July 19, 2023.
UK inflation Meet the Bank of England’s 2% target Data released earlier on Wednesday showed this was the case for the second month in a row.
However, the inflation report slightly reduced market bets on a rate cut by the central bank in August, as key services reports were sticky. Higher interest rates tend to increase the attractiveness of a currency.
Meanwhile, GBP/USD rose 0.07% EUR1.1908.
The UK currency has also been supported recently Parliament achieved a landslide victory For Labor, analysts say.
Joe Tuckey, head of foreign exchange analysis, said: “Strong UK economic data in recent weeks, coupled with the relatively stable UK politics in the ‘safe haven’, have made the possibility of an imminent interest rate cut in August diminishing, and the pound has also gained ground.” A steady rise.
GBP/USD.
“This morning’s solid inflation reading of 2%, slightly above expectations, may only slightly reduce the likelihood of a rate cut in August and may support recent GBP strength.”
Jane Foley, head of foreign exchange strategy at Rabobank, said in an interview with CNBC’s “Squawk Box Europe” that the pound is the only currency among the G10 developed economies to outperform the US dollar so far this year, and it was also the second-best performing currency last year. .
Against this backdrop, GBP/USD trade volumes fell to historically low levels in September 2022. ‘Mini budget crisis’ Foley added that it was the responsibility of the former British government.
“The pound is starting to find its footing again and I think there’s a lot of optimism now that maybe with more political stability we can start to get a better tone on the investment side,” Foley told CNBC.
“We’ve seen (new finance minister) Rachel Reeves make the right noises about trying to boost growth, trying to engage the private sector to drive investment and productivity. So so far, (has) The right noises are being made, (and) maybe it’s the honeymoon period now, we’ll have to wait and see.
She added, “There does seem to be a view that as long as politics remains relatively dull, and to be fair, that was the case last year, investment growth will come back.”
Yields on British government bonds, known as gilts, generally edged higher following the CPI release. The 2-year bond yield rose 2 basis points to 3.995%, and the 10-year bond yield rose 1 basis point to 4.068%. Yield is inversely proportional to price.
Overall, gilt yields have been lower since Labor’s victory on July 4.
