Sterling Near Multi-Year High as Dollar Weakens

The British pound hovered just below $1.38, remaining close to the August 2021 highs reached earlier in the week, as heightened dollar volatility weighed on the currency.

Traders assess comments from US Treasury Secretary Scott Bessent indicating that the US will not intervene in foreign-exchange markets by selling the dollar against the yen, alongside the broader “sell America” trade.

Meanwhile, the Federal Reserve left interest rates unchanged, as expected, with Chair Powell signalling that policy is likely to remain on hold for some time.

In the UK, the Bank of England is widely expected to keep its benchmark interest rate at 3.75% next week, as inflation rose to 3.4% in December and recent British Retail Consortium data pointed to accelerating price pressures.

The British pound hovered just below $1.38, close to its strongest level since August 2021, supported by a weaker US dollar ahead of the Federal Reserve’s highly anticipated policy announcement later today, with investors seeking clues on the timing of the next rate cut.

The dollar slid to a near four-year low late Tuesday after President Trump said he was comfortable with its recent decline, amid government shutdown concerns, a soft consumer confidence report, and ongoing policy uncertainty in Washington, including renewed tariff threats and criticism of Fed independence.

At the same time, UK data from the BRC on Tuesday pointed to accelerating price pressures, raising concerns about persistent inflation and potentially limiting the Bank of England’s scope to cut interest rates in the near term.

The British pound climbed above $1.36, reaching its strongest level since mid-September, as the US dollar softened amid heightened market caution over potential yen intervention in Japan.

Investors also looked ahead to the Federal Reserve’s policy announcement on Wednesday, with rates widely expected to remain unchanged and speculation growing that a more dovish successor to Fed Chair Jerome Powell could be named this week.

Meanwhile, geopolitical and trade tensions continued to weigh on markets.

US President Donald Trump initially threatened several European countries with new tariffs over Greenland, before reversing course following a framework agreement toward a future deal.

He also warned that the US could impose 100% tariffs on Canada if it reached a trade agreement with China.

GBPUSD increased to 1.36, the highest since September 2025.

Over the past 4 weeks, British Pound US Dollar gained 0.47%, and in the last 12 months, it increased 8.67%.

The British pound climbed above $1.35, its highest level in over two weeks, as traders scaled back expectations for Bank of England rate cuts following comments from policymaker Megan Greene and stronger-than-expected UK economic data.

Greene noted that a central bank survey suggests the decline in wage growth has run its course, and she expressed less concern over slowing disinflation, while looser US monetary policy could support higher UK inflation.

Meanwhile, S&P Global PMI data showed UK private sector activity expanded in January at its fastest pace since April 2024, while retail sales rose 0.4% in December, surpassing expectations.

Consumer confidence also climbed to its highest level since August 2024.

These reports follow earlier data showing a hotter-than-expected headline CPI of 3.4% in December.

Elsewhere, US-Europe trade tensions eased for now after President Donald Trump announced he would refrain from imposing tariffs on European goods opposing his Greenland plan.

The British pound hovered around $1.34, staying above the four-week low of $1.338 touched on January 15, as US-Europe tensions appeared to ease for now.

US President Donald Trump said he would refrain from imposing tariffs on goods from European countries opposing his plan to take control of Greenland.

He also noted that a “framework for a future deal” had been agreed following talks with NATO, though details of any agreement remain unclear.

Meanwhile, investors digested a batch of UK economic data.

The public sector budget deficit narrowed to £11.6 billion in December, below market expectations of £13 billion.

Headline CPI inflation rose to 3.4%, slightly above forecasts of 3.3%, while services inflation, a key measure of domestic price pressures watched by the Bank of England, edged up to 4.5% from 4.4%, marking a smaller-than-expected increase.

The unemployment rate remained at 5.1%, a pandemic-era high, while wage growth slowed to 4.5%, its weakest pace since April 2022.