The British pound hit a 15-month high on Tuesday following the release of positive labor data which overshadowed previous concerns about rising expectations for more interest rate hikes from the Bank of England (BoE).
Against the U.S. dollar, the sterling rose to $1.2913, its highest level since April 2022. For the year to date, it is the best-performing currency against the dollar, gaining 6.6% since the start of 2023.
Currently, the UK has experienced some of the steepest price rises globally, with inflation proving to be more resilient than in other markets. As a result, the market expects the BoE to raise interest rate by at least another 125 basis points; far exceeding expected rate hikes from the Federal Reserve or the European Central Bank.
British wages matched their highest growth rate on record, data on Tuesday showed. “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,” Jane Foley, head of FX strategy at Rabobank observed.