Plunging Covid cases are fueling a jump in the pound against the dollar, which is likely to hit a one-month high.
Prior of next week’s crucial Bank of England (BoE) meeting, the pound sterling moved close to a one-month high versus the dollar on Friday, putting it on track for its best week since December.
The reopening of the British economy, combined with a downward trend in COVID-19 cases, has fueled a rebound in the pound, which has gained nearly 3% in less than a fortnight to approach close to $1.40. Sterling is also benefiting from broad dollar weakness, which has been compounded by a dovish Federal Reserve meeting this week.
The pound was modestly higher at $1.3965 at 7.45 a.m. on Friday, barely behind the one-month high of $1.3982 achieved on Thursday, and had pushed up to $ 1.3971 by midday.
This week alone, the pound has risen 1.6 percent against the dollar, making it one of the best-performing global currencies.
Sterling was somewhat weaker against the euro, trading at 85.18 pence.
However, since early April, it has remained close to its highest level against the single European currency.
The Bank of England is anticipated to keep its foot firmly on the stimulus pedal when it meets on Thursday.
However, as the economy improves, there is rising discussion about the necessity to start tapering the Fed’s bond-buying program.
Recently, two Bank of England policymakers have expressed similar sentiments.
“Markets appear to be rebuilding some GBP long positions ahead of next week’s Bank of England meeting, with sentiment on the currency recently bolstered by a decline in COVID-19 cases in the UK despite most limitations having now been lifted,” ING analysts wrote in a research note.
“Sterling has been one of the top performers in the G10 this week, surging up against the US dollar by roughly 1.5 percent,” said Jeremy Thomson-Cook, Chief Economist of international business payments provider Equals Money.
“While the majority of this will be due to the belief that COVID-19 case counts and hospitalizations are improving, we also have the Bank of England meeting next week to consider.”
“Rate expectations are starting to rise again, but we must remember that much of the GBP movement in the last week has been due to USD depreciation rather than GBP strength,” he added.
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