(Reuters) – Pound sterling climbed to a more than two-year high against the dollar on Friday, following recent signs of strength in the British economy and dovish comments from Federal Reserve Chairman Jerome Powell, pushing the dollar fell against several global currencies.
The British pound rose 0.7% to $1.3185, hitting its highest level since late March 2022. It surpassed a previous 13-month high of $1.3144.
The , which tracks the dollar’s performance against six major currencies, fell 0.5% after Powell said “the time has come” to adjust policy and vowed to do all he can to prevent further weakening of labor markets.
“I think initially the market will be really subdued, interest rates will drop and the dollar will fall,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Following Powell’s comments, traders at the US central bank meeting in September are now more likely to see a massive 50 basis point rate cut.
Sterling is one of the best-performing major currencies this year, gaining strength over the past two months after a slew of stronger-than-expected economic data suggested the BoE was in no hurry to cut interest rates.
The latest figures show that British consumer confidence was at its highest point in almost three years in August. A survey on Thursday showed that UK business activity accelerated in August and cost pressures eased to the weakest levels in more than three years.
The latest milestone for the pound marks a turnaround since late 2022, when concerns about rising inflation and sluggish growth were exacerbated by then-Prime Minister Liz Truss’ economic plan, which threatened Britain’s fiscal health.
The coin hit a record low of $1.0327 in September 2022 and has recovered around 27% since then. However, it remains about 38% lower than the record level of 2007, before the global financial crisis.
Following Powell’s comments, the focus for the pound shifts to Bank of England (BoE) Governor Andrew Bailey, who will speak at the symposium at 7pm GMT.
“Bailey is not dealing with aggressively easing prices (-39 basis points by year-end), but Britain still needs to gain much more confidence on the inflation front,” said ING FX strategist Francesco Pesole.
The BoE cut its bank rate to 5.00% after a 16-year high of 5.25% in early August, and market prices show traders see at least one more rate cut this year. The Fed, on the other hand, will cut rates by at least 25 basis points at each of the three meetings remaining this year.
The euro/sterling fell to a three-week low, down 0.3% to 84.66 pence per euro.
