Investor appetite for the British currency remains


Sterling traded close to fresh highs against the euro and dollar yesterday. Investor appetite for the British currency remained amid expectations of higher interest rates in the UK this year.

In recent weeks, we have seen sterling benefit from short term monetary policy tightening expectations with interest rate hikes now being priced in for February and May of this year. However, analysts are now suggesting that sterling is benefitting from heightened expectations of further hikes over the medium term. For instance, money markets are now pricing in an interest rate of just over 1% by year end.


The dollar fell to a two month low against a handful of currencies yesterday as US inflation data failed to exceed current market expectations, disappointing dollar bulls in the process.

According to the data, US inflation surged to 7% year-on-year, its highest year-on-year increase in four decades.

In normal circumstances record high inflation would usually result in the dollar strengthening. However, many investors began pricing in a hawkish Federal Reserve last year and yesterday’s sell-off is a reflection of investors reigning in their overly hawkish expectations.

This follows comments from Fed Chair Jerome Powell on Tuesday that gave no indication the Fed would be in a rush to tighten monetary policy.

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