British pound at highest levels since August as USD slides

Pound sterling hovers around $1.26 on hawkish comments from BoE

The British pound held onto its gains above the $1.26 threshold, reaching its highest level since late August, as investors processed recent hawkish statements from Bank of England (BoE) officials.

Deputy Governor Dave Ramsden on Tuesday said that Britain's monetary policy is likely to adopt a "restrictive" approach for an extended duration to steer inflation back to the central bank's 2% target.

Chief Economist Huw Pill stressed that the BoE needs to remain resolute in its fight against inflation, emphasizing that there is no room to ease its tight monetary policy. Concurrently, recent data indicated a stabilization in the UK's private sector activity in November, surpassing market expectations and marking the end of a three-month contraction period.

The Bank of England, which maintained its interest rates at 5.25% in its last two meetings following 14 consecutive increases, is closely watching for potential upward risks to inflation.

Although financial markets strongly believe that rates have reached their peak, BoE Governor Andrew Bailey recently said that it is "too early" to consider rate cuts.

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UK consumer confidence: GfK index reading jumps in November despite lingering inflation pain

The GfK consumer confidence index — a monthly tracking of UK consumers' views of their finances and the economy — saw a better-than-expected improvement in November, increasing to -24 from October's three-month low of -30.

Joe Staton, GfK's client strategy director, commented on the November reading:

"Recent ups and downs in confidence have underlined the nation's topsy-turvy economic mood as encouraging news about falling inflation and wage growth is offset by high personal taxation, alongside costly fuel and energy bills.”

The UK economy has suffered stagnating growth, but the GfK’s measure of how British consumers view the economy in the 12 months ahead went up to –26 from –32 in October, while

GBP forecast: Analysts say pound could strengthen further in the near-term

In their GBP forecast, issued on November 28, analysts at MUFG Bank said that the British pound could strengthen against both the dollar and euro in the coming weeks, although those gains would stand on “shaky foundations”:

“Fears over more persistent inflation risks in the UK encouraging rate market to price in more gradual dovish BoE policy shift. The developments should help to provide more support for the GBP in the near-term in so far as short-term yield spreads are moving back in favour of the UK. However, we remain skceptical that the recent upward adjustment for UK rates will be sustained.

The GBP could strengthen further in the near-term against EUR and USD, but the gains are built on shaky foundations.”

Shaun Osborne, Chief FX Strategist at Scotiabank, said the pound-to-dollar rate was headed toward the low 1.27s:

“New highs for the move up and solid looking DMI oscillators across the short, medium and long-term studies give the GBP a positive technical undertone.

Cable closed out last week above the 50% retracement resistance (1.2589) which targets additional gains towards 1.2720 (61.6% Fib) now.

Minor dips to the figure area (or just below) should be well-supported.”

At the time of writing on Tuesday, the GBP to USD exchange rate traded around the $1.2639 level, with sterling having gained over 0.8% against the greenback over the past 5 days. As of November 28, the UK currency has gained close to 4.5% against the dollar year-to-date.

The DXY index, a measure of U.S. dollar strength against six major currencies, was down 0.11%, trading around the 103 mark. The DXY has shed close to 3.4% over the past month.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.