LONDON (Reuters) – Sterling rose to its strongest level against the dollar this year on Friday, after UK GDP data earlier this week sweetened the mood around the strength of the British economy, while the dollar weakened on some relief over U.S. tariff threats.
At 1043 GMT, the pound rose 0.1% to $1.25775 against the dollar, its highest level since December 30.
Sentiment towards the UK economy was boosted after data on Thursday showed Britain’s economy unexpectedly grew by 0.1% in the final quarter of last year, strengthening the pound.
“The pound was buoyed by the broad risk on mode in the market on Thursday, and the mild surprise to the upside in the latest GDP report for Q4,” said Matthew Ryan, head of market strategy at Ebury.
He added that the outlook remains complicated for the economy amid flat-lining growth in the second half of last year, elevated inflation, high mortgage rates and a high tax burden.
The pound was also helped higher on Friday by a weaker dollar as traders breathed a sigh of relief that Washington did not immediately impose reciprocal tariffs, suggesting room for negotiation, while a U.S. producer price report soothed inflation concerns.
The pound was largely flat against the euro,with one euro worth 83.39 pence.
Money markets are pricing in 60 basis points of further easing this year from the Bank of England, compared with a little more than one quarter-point from the Federal Reserve and at least four quarter-point cuts from the European Central Bank.
Market watchers are looking ahead to a fourth-quarter 2024 labour report due next Tuesday for more direction on the BoE’s interest rate path, after the previous report showed British pay growth remained robust at 6% in the three months to November though there were more signs of a softening jobs market. More pay growth can add to inflationary pressures.
(Reporting by Lucy Raitano; Editing by Emelia Sithole-Matarise)
