The pound has traded above $1.30 for the first time since president Donald Trump’s November election win, as a falling dollar caused by trade war fears has proved a boon for sterling.
Sterling has climbed 2.7 per cent over the last month and 6.5 per cent since its January low, reaching a fourth-month high of $1.30.
The pound has been helped by a weak dollar as investors have started to price in the risk of a recession in the US as the impacts of Trump’s trade war starts to spread.
While UK economy is hardly in a better position, OECD recently slashed its growth forecasts due to the escalating trade war, the country is not expected to be as exposed as many others.
Despite the recent strong performance, the pound has still not returned to the three-year high printed in September last year, after concerns over UK government spending hit gilts and sterling.
With the UK enduring stickier inflation than most other developed economies, the Bank of England has taken a more hawkish line than most of its peers, leading markets to expect a slower path of cutting interest rates in Britain.
Things seem to have swung in sterling’s favour now, as markets worry that US growth prospects are declining sharply.
A similar boost in fortune has also happened for the euro, climbing 6.5 per cent over the last two months to reach its highest level since October, at $1.09.
“Investors are ignoring the usual safe-haven currencies, the Japanese yen and Swiss franc, and have piled into the euro and sterling instead,” said David Morrison, Senior Market Analyst at Trade Nation.
The Bank of England is widely expected to keep interest rates steady at 4.5 per cent this week, with markets giving a 95 per cent chance of a hold.