In the light of inflation figures and expectations, the British Pound (GBP) is experiencing its strongest period in recent months against the US Dollar and Euro.
Sterling continued to rise as of the beginning of the week, reaching the highest figure of the last 10 months compared to the Euro. The pair, which has not seen below the 0.855 level since the last days of August, is currently trading at £0.852.
The pound has gained 4.1% against the euro since the start of the year. The British currency rose more against the dollar than the euro. Trading at £0.779, USDGBP reveals that the pair has gained 5.67% against the dollar since the start of the year. The British Pound is trading at 30.29 TL against the Turkish Lira.
Macroeconomic conditions lie behind the higher performance of the euro against the dollar and the higher performance of the sterling against the euro. The central banks of the three major economic regions are giving signals of divergence in the future on interest policy. In the meetings held last week, while the FED kept the interest rates constant, the European Central Bank ECB continued to increase the funding rates.
Although inflation decreased in line with expectations in Europe and the EU, the situation in the UK is different.
Britain’s Inflation Problem
The island nation’s central bank, the Bank of England BoE, continues to struggle with inflation. However, some developments in the past year leave the issue of how tight monetary policy is being implemented ambiguous.
BoE’s intervention in the market last September was the subject of great debate. Wanting to prevent a possible crisis in the debt markets, the central bank bought bonds worth 65 billion pounds. One month after this decision, the new prime minister Lis Truss resigned.
Since the announcement of the measure package, inflation has decreased significantly in the USA and EU. However, this situation did not occur at the expected level in England.
According to the latest data, annual consumer inflation was 4% in the USA and 7% in Europe. In the UK, annual inflation was recorded as 8.7%.
The BoE will announce its next rate decision on June 22, 2023. Markets expect the central bank to raise interest rates by 25bps.
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