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The British pound recently marked a significant turnaround in its performance, reaching its highest level against the US dollar in 10 months, surpassing $1.25 for the first time since June 2022. The pound has shown a remarkable 3.3% growth against the greenback since the beginning of 2023, making it the best-performing currency among developed economies this year.
This resurgence in the UK currency can be attributed to the country’s economy showing more resilience than initially anticipated. Recent data suggests that economic activity expanded by 0.1% in the last quarter of 2022, up from the previous estimate of zero growth. Additionally, there was a 0.3% GDP growth in January following a decline of 0.5% in December.
Expectations are high that the Bank of England will continue its aggressive interest rate hikes, attracting foreign investors seeking higher returns which, in turn, can boost the domestic currency. Moreover, with inflation soaring to an annual rate of 10.4% in February, maintaining a stringent policy is imperative for the Bank of England.
The positive economic outlook has led to a positive outlook for the pound, as it had tumbled to close to $1.03 in September 2022 due to concerns surrounding the former UK government’s budget plans. The rebound in energy prices and China’s economic recovery since the beginning of the year have contributed to the renewed confidence in the UK economy.
Experts believe that the pound has the potential to climb even higher, with some predicting it could reach $1.30 and beyond in 2023. However, risks still remain, especially considering the uncertainties surrounding the Bank of England’s policies and the impact of the rate hikes on the economy.
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