Pound surges amid rate hike bets, now 19% stronger than rand over the past year

Photo by Matt Cardy/Getty Images

Sterling rose to a 15-month high against the dollar on Tuesday after hot British labour data underscored market expectations of more interest rate rises from the Bank of England (BOE), and the greenback softened across the board.

The pound rose as high as $1.2913, its highest since April 2022, and was last trading just shy of that level, up 0.37%.

At Tuesday around lunch time, the rand was trading at R24.12 to the pound. The rand hit a record-low (R24.58) against the UK currency last month. It has now lost 19% of its value against the pound over the past year, compared to an 11% fall against the dollar. 

The rand was trading at R18.63 to the dollar on Tuesday.

The pound has gained 6.6% so far this year, the best performing major currency against the dollar in 2023, as price rises in Britain prove stickier than inflation elsewhere, prompting traders to bet that the BOE will raise rates higher than other central banks.

Current market pricing indicates roughly a further 125 basis points of rate hikes from the BOE, much more than for the Federal Reserve or European Central Bank.

Higher rates are typically a boost for a currency in the near term, though many analysts say the resulting hit to economic growth would weigh on the pound in the long run.

Tuesday data showed a key measure of British wages matched its highest growth rate on record, though the unemployment rate did rise unexpectedly.

“The wage data indicated there is more work to do for the Bank of England and second order inflationary pressures are still in the pipeline,” said Jane Foley, head of FX strategy at Rabobank.

She said while those further rate rises were already in the price, Tuesday’s data had reinforced such views.

Sterling’s gain against the dollar was also helped by a broad dollar decline. The dollar index, which tracks the unit against six major peers, including the pound, was down 0.18% at a two-month low, though US CPI data due on Wednesday could stem that decline if it comes in higher than expected.

The pound also strengthened against the euro, which dropped 0.34% to 85.23 pence, its lowest since mid-June.

Additional reporting on the rand by News24.

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