The British pound has strengthened considerably, reaching its highest level in over two weeks, driven by positive UK economic data releases and a reassessment of expectations for Bank of England (BoE) interest rate cuts. Stronger-than-anticipated PMI data, retail sales figures, and improved consumer confidence have all contributed to the pound’s upward momentum against the US dollar.
- The British pound climbed above $1.35, a two-week high.
- Policymaker Megan Greene indicated wage growth decline may have run its course and showed less concern over disinflation.
- S&P Global PMI data showed UK private sector activity expanded at its fastest pace since April 2024. The Composite PMI jumped to 53.9 in January from 51.4 in December, beating estimates of 51.7.
- Retail sales rose 0.4% in December, exceeding expectations of a 0.1% decline.
- Consumer confidence reached its highest level since August 2024.
- The Services PMI has come in at 54.3, higher than the 51.7 estimate and the prior release of 51.4.
- The Manufacturing PMI rose sharply to 51.6 from the previous reading of 50.6.
- Strong UK Retail Sales data is expected to weigh on market bets for interest rate cuts by the Bank of England (BoE) in the near term.
- US-Europe trade tensions eased after President Trump refrained from imposing tariffs.
The confluence of factors suggests a more robust UK economy than previously anticipated. This has prompted a revision of expectations regarding the central bank’s monetary policy, with markets now pricing in a lower probability of near-term interest rate cuts. The positive data releases and shifts in central bank commentary indicate the potential for sustained strength in the value of the currency.