The pound surged past $1.30 for the first time in six weeks today, closing at $1.3120. Traders cited a string of better-than-expected economic data from the UK. Manufacturing output rose 1.2% in May, beating forecasts. Services PMI hit 54.8, its highest since April. “The UK economy is showing genuine resilience,” said James Harding, currency strategist at Barclays. “Markets are reassessing the chance of a rate hike by the Bank of England this year.”
Sterling’s rally also reflects relative weakness in the dollar. US jobless claims ticked up to 240,000, and Fed minutes signalled a potential pause in tightening. “The dollar is losing its safe-haven appeal,” noted Fiona Walsh, FX analyst at HSBC. “Investors are rotating back into cyclical currencies like sterling.”
But some remain cautious. Brexit uncertainties linger. UK GDP growth for Q2 is due next week. If it disappoints, the pound could slide again. For now, the mood is optimistic. One trader at a London hedge fund said, “We haven’t seen sentiment this bullish since January.”
The rally has boosted UK stocks. The FTSE 100 gained 0.6%, led by exporters who benefit from a stronger domestic currency. Bond yields edged higher, with the 10-year gilt yield rising to 4.32%. Markets now price in a 55% chance of a BoE rate rise by November.
Yet the path ahead is uncertain. Inflation remains sticky at 8.7%. Wage growth is slowing. The BoE’s next meeting is in August. Governor Andrew Bailey has stressed data dependency. If services inflation stays high, a hike is likely. But if growth falters, the bank may hold fire.
For now, sterling is enjoying a tailwind. But currency markets are fickle. One misstep in the data could reverse the gains. Today, though, traders are betting on Britain.
