(Reuters) – Sterling rose to its highest level in more than two years against the dollar on Friday, helped by fresh signs of strength in the British economy and dovish comments from Federal Reserve Chairman Jerome Powell that pushed the greenback lower against many global currencies.
The pound jumped 0.7% to $1.3185, touching its highest level since late March 2022. It surpassed the previous 13-month high of $1.3144.
The dollar index, which tracks the greenback against six major currencies, fell 0.5 percent after Powell said it was “time” to adjust policy and promised to do everything he could to avoid further weakening of labor markets.
“I think initially the market is going to be really dovish, cut rates and depreciate the dollar,” said Mark Chandler, chief market strategist at Bannockburn Global Forex.
Following Powell’s comments, traders priced in a higher probability of a 50 basis point rate cut at the Fed’s September meeting.
The pound has been among the best performing major currencies this year, gaining momentum in the past two months after a series of stronger-than-expected economic data suggested the Bank of England did not need to rush to cut interest rates.
British consumer confidence remained at its highest level in almost three years in August, the latest figures showed. A survey on Thursday showed UK business activity accelerated in August and cost pressures eased to their lowest in more than three years.
Sterling’s latest achievement marks a turnaround since late 2022 when concerns about rising inflation and slowing growth were exacerbated by then-Prime Minister Liz Truss’s economic plan that put Britain’s financial health at risk.
The pound hit a record low of $1.0327 in September 2022 and has since recovered about 27%. However, it is still down about 38% from its record high in 2007, before the global financial crisis.
After Powell’s remarks, the focus for sterling shifts to Bank of England Governor Andrew Bailey, who is due to speak at the seminar at 1900 GMT.
“Bailey doesn’t have to deal with aggressively accommodative pricing (-39bps by year-end), but the UK still needs to gain more confidence on the inflation front,” said Francesco Bisol, FX strategist at ING.
The Bank of England cut interest rates to 5.00% from a 16-year high of 5.25% in early August, and market prices show traders expect at least one more rate cut this year. The Federal Reserve, on the other hand, is expected to cut rates by at least 25 basis points at each of its three remaining meetings this year.
The euro fell against the pound to a three-week low, trading down 0.3% at 84.66 pence per euro.