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Pound Climbs to $1.30 on Bets UK Interest Rates Will Stay Higher

foreign exchange :: 12hrs ago :: source - bloomberg

By Vassilis Karamanis


(Bloomberg) -- The pound rose above $1.30 for the first time since November on bets interest rates in the UK will stay above those of its main peers this year.

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Sterling rose 0.1% on Tuesday to $1.3001, also supported by broad dollar weakness amid US economic growth concerns and uncertainty around the outlook for trade tariffs. The currency is up by nearly 4% this quarter.

The Bank of England meets this week and is expected to hold interest rates steady at 4.5%, as rising inflation and geopolitical uncertainty favor a gradual easing pace. By year-end, traders see the BOE lowering borrowing costs by 51 basis points, less than the 60 basis points expected from the Federal Reserve. The US central bank also meets this week and is forecast to keep rates at 4.5%.

The divergence in the outlook for policy is reflected in the bond market. Benchmark 10-year UK bonds are yielding around the most relative to US peers since late 2023, boosting the pound’s appeal.

In the options market, sentiment toward sterling is still negative due to fears of a global economic downturn, but it is now near the least bearish levels since October.

While data last week showed the UK economy unexpectedly shrank at the start of 2025, driven by declines in manufacturing and construction, there’s some hope that Britain’s plans for big spending on infrastructure will underpin growth.

Also the UK government reaffirmed its commitment to US trade last week as Prime Minister Keir Starmer said that his government would keep “all options” on the table in terms of a response to US President Donald Trump’s global steel and aluminum tariffs.

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