The British pound soared against other G-10 currencies on Friday, following the Jackson Hole Symposium, a key event hosted by the Federal Reserve to discuss central banking policies. The pound surged to its highest level since March 2022 against the US dollar, breaking above 1.32, and reached a three-week high against the euro at over 1.18.
This rally was driven by signals from Federal Reserve Chairman Jerome Powell, who hinted at a potential rate cut in September, weakening the US dollar. In contrast, Bank of England Governor Andrew Bailey adopted a more hawkish stance, indicating that further interest rate cuts in the UK would not be rushed, despite easing inflationary pressures. This position made the pound more attractive to investors, who are now anticipating higher yields from UK government bonds compared to their US counterparts.
As of Friday, the UK 10-year government bond yield stood at 3.91%, the highest among major central banks, while the US 10-year Treasury yield dropped to 3.78%, its lowest point of the year. This yield differential further supported the pound’s rise.
Economic data also bolstered the pound, with the UK economy showing strong recovery signs. The Gross Domestic Product (GDP) grew by 0.6% in the second quarter of 2024, following a 0.7% increase in the first quarter, making it the strongest growth among G7 countries.
Political stability following the Labour Party’s landslide victory in the July election has also contributed to the pound’s strength, with market optimism regarding the new government’s economic policies.
With the US dollar expected to remain weak due to anticipated Fed rate cuts, analysts suggest that the GBP/USD exchange rate could continue its upward trend, possibly surpassing levels not seen since June 2021.
Credit: euronews (Text Excluding Headline)
