Sterling hit 11-year highs against the dollar on Tuesday and gained ground on the euro as expectations for higher British rates gave the higher-yielding pound an additional advantage over its peers.
The dollar has sold off across the board on concerns about the US current account deficit and expectations that US interest rates will remain low for some time, which would encourage flows into higher-yielding currencies.
The euro hit record highs versus the dollar on Tuesday and its rise has prompted talk the European Central Bank might be less likely to raise rates now.
In contrast in Britain expectations for higher rates were underpinned by a report by mortgage lenders Halifax showing the strongest rise in house prices since February and strong retail sales data, leading to nervousness ahead of a Bank of England (BoE) rate-setting meeting which starts on Wednesday.
"It's the intensification of a move towards dollar weakness, and the out-performance of sterling against a non-dollar peer group is due to a favourable move in interest rate spreads - people are expecting rates will rise faster in the UK than in the euro zone," said Steven Pearson, chief currency strategist at Halifax Bank of Scotland Treasury Services.
Sterling gained more than one percent to $1.8277, its highest since September 1992 - the month Britain withdrew from the European Exchange Rate Mechanism after losing a battle with speculators. By 1515 GMT it had pared gains to $1.8220. Against the euro it also edged higher to 69.89 pence, a three-week high.
Comments
Comments are closed.