The U.S. dollar rose to a two-month high on Wednesday as uncertainty over the stalling U.S. debt ceiling talks sent investors to seek refuge in historically stable investment instruments.
The Bloomberg dollar index, which tracks the dollar’s performance against a basket of major currencies, rose by 0.25% to 103.77 on Wednesday; its highest level since March 20.
Focusing on individual currencies, the sterling was down 0.23% against the dollar; falling to a one-month low of $1.23645. In contrast, both the euro and the yen held steady against the greenback at $1.1076 and 138.48 respectively.
While the British pound had largely been supported by inflation-induced interest rate hikes by the Bank of England, the effects of the BoE’s tight monetary policy have recently been fading.
“We’re now in that realm where if the Bank of England does meet market expectations and take interest rates that high, we’re talking about a worsening of the UK investment outlook, and financial stability considerations coming into view, which is negative for UK assets,” Simon Harvey, head of FX analysis at Monex Europe observed.