The British pound is trading near a three-month high against the dollar, buoyed by expectations of diverging monetary policies between the Bank of England and the US Federal Reserve. While markets anticipate multiple rate cuts from the Fed this year, only a single additional rate cut is priced in for the Bank of England. Geopolitical tensions and recent UK economic data are also factors influencing the pound’s performance.
- The British pound traded around $1.346, near a three-month high of $1.352 reached on December 23.
- Investors are focused on diverging interest rate outlooks between the Bank of England and the US Federal Reserve.
- Markets expect at least two rate cuts from the Fed this year.
- Only one additional rate cut by the Bank of England is fully priced in for 2026.
- Geopolitical tensions related to the US and Venezuela are adding to global uncertainty.
- UK mortgage approvals fell slightly, but less than expected.
- UK consumer borrowing surged to a two-year high in November, driven by credit-card spending.
The relative yield advantage that the British pound offers compared to the US dollar, due to differing expectations for interest rate adjustments, is providing significant support. Domestic economic data, although mixed, appears to be having less of an impact than the broader monetary policy outlook. Continued geopolitical instability introduces an element of uncertainty that could further influence the pound’s trajectory.