The British pound is trading near a three-month high against the dollar, around $1.346, driven by diverging interest rate expectations between the Bank of England and the US Federal Reserve. Uncertainty due to geopolitical tensions is also in focus. Recent UK data shows a mixed picture, with mortgage approvals slightly down but consumer borrowing significantly up.
- 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 anticipate the Fed will cut rates at least twice this year, potentially three times, putting downward pressure on the dollar.
- Only one additional rate cut by the Bank of England is fully priced in for 2026, offering the pound a relative yield advantage.
- Geopolitical tensions, including the US move regarding Venezuela’s president, add to global uncertainty.
- UK mortgage approvals declined slightly but less than expected.
- UK consumer borrowing surged to a two-year high in November, fueled by credit-card spending.
The relative strength of the British pound is being supported by expectations of fewer interest rate cuts compared to the dollar. This creates an environment where the pound may offer a more attractive yield to investors. While global uncertainty adds a layer of complexity, domestic factors like increased consumer spending are also contributing to the pound’s performance.