A pound could buy $1.21 on Thursday morning, its highest since mid-August, making imports cheaper for UK businesses and consumers.
The 20 cent increase in the purchasing power of the British pound from a all time low in the days following the September mini-budget and its accompanying market upsetis due to the weakness of the dollar rather than the strength of the pound.
The three-month high follows news from the US Federal Reserve, known as the Fed, that the majority of its members want to slow the pace of rate cuts. interest rises.
The Fed had been constantly raising rates in an effort to lower rates inflation towards its target of 2%, but Inflation in the US was 7.7% in the year to November.
A stronger pound is good news for businesses and consumers and could help lower inflation as importing goods, such as food and petrol, become cheaper.
While the pound held onto gains all morning, the pound has continued to fall against the dollar this year. The value of the pound reached a high against the dollar in mid-January this year, when £1 bought $1.37.
Higher pound values can also be a measure of economic confidence and financial stability and so the pound fell in value following the now withdrawn mini-budget plan of unfunded tax cuts and spending.
US markets are closed for Thanksgiving, so a broader market reaction to the Fed’s interest rate position is not clear.
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Interest rates have risen around the world as countries grapple with inflation due to rising energy costs, triggered by Russia’s invasion of Russia Ukraineand supply chain problems arising from COVID-19 closures.
Like the Fed, whose positions were known through the release of minutes, the interest rate-determining body for the eurozone, the European Central Bank (ECB), released minutes of its meetings on Thursday.
But unlike the Fed, the ECB said it feared inflation could take root, reports from their latest policy meeting showed. As a result, rates should rise further, the minutes of the October 26 and 27 meeting showed.
“It was also clear that rates had to be raised further to reach a level that would meet the ECB’s medium-term target of 2%,” the minutes of the meeting said.
The pound is at a monthly high against the euro and can buy €1.16.