The pound slipped back after touching its highest level against the dollar since the start of January, as traders weighed up Brexit negotiations and rising inflation.
Sterling hit $1.327 today, erasing its losses for 2020 as it reached its highest level since 1 January. It was helped by the continuing slide in the dollar, which has been hit by economic and coronavirus worries.
But the pound slipped back in the late morning as investors weighed up inflation data and new Brexit talks. It was last down 0.2 per cent at $1.322.
The fall in the dollar, which is trading at new two-year lows, has helped rival currencies around the world surge.
“A large part of the rise [in the pound] can be attributed to the dollar’s recent collapse,” said Connor Campbell, market analyst at trading platform Spreadex.
He said the dollar has been “hit by fears over the state of the US economy, the related Covid-19 mishandling, the impending November election and the ongoing tensions between Beijing and Washington”.
Pound traders weigh up Brexit and inflation
UK inflation data out today gave traders something to think about this morning during thin August trading.
The headline consumer price index inflation rate grew by one per cent in July, from 0.6 per cent in June. That was above economists’ expectations of it remaining at 0.6 per cent.
Some analysts said investors took the better-than-expected reading to mean the Bank of England would hold off on boosting stimulus. This boosted the pound as lower interest rates are traditionally bad for the currency.
Yet Brexit worries are still hanging over the pound. Talks resumed yesterday but the two sides still seem far from a deal, meaning the UK could end the transition period without a new trading arrangement in place at the end of this year.