FX.co ★ Sterling Breaks $1.35 Level

The British pound has risen past $1.35, marking its highest level in three months, as it capitalizes on a weaker US dollar. This shift is largely due to market expectations of at least two interest rate reductions by the Federal Reserve in the coming year, which would diminish the dollar’s yield advantage. Recently, the Bank of England reduced its interest rates by 25 basis points to 3.75% in December. This decision resulted from a close 5-4 vote, highlighting concerns around persistent inflation. Although inflation decreased to 3.2% in November, it remains significantly higher than the Bank’s 2% target. Governor Andrew Bailey noted that interest rates would likely continue to decrease, albeit not as swiftly as markets might desire. During the third quarter, the UK's GDP increased by 0.1%, aligning with expectations. However, the Bank of England predicts stagnation for the final quarter. Despite this, investors anticipate at least one more rate cut in the first half of the upcoming year. The pound has appreciated over 2% this month and has surged approximately 8% year-to-date, setting it on course for its strongest annual performance against the dollar since 2017.