Sterling surges to highest in four years amid dollar weakness
Sterling touched its highest level against the dollar in four years on Tuesday as selling pressure on the greenback intensified.
The pound was trading at $1.376, its highest level since 2021, while the euro also rose to multi-year highs on Tuesday afternoon, continuing a poor run for the dollar.
In January alone the dollar index – which weighs the greenback against a selection of other global currencies – has lost two per cent, a significant fall.
Investors have been concerned by the risks that Trump poses to the independence of the US Federal Reserve, his erratic domestic policies, and the broader geopolitical consequences of his threats to invade Greenland.
“The upending of the post-World War II order is a long-term negative for the dollar,” Lefteris Farmakis, senior FX strategist at Barclays, noted.
Eyes turn to Jerome Powell
The Fed’s next rate decision will be on Wednesday and although markets expect rates to be left on hold, Jerome Powell’s press conference will dominate attention. It will be the first rate decision since the Department of Justice opened a criminal indictment against the Fed chair.
Sterling also received some support from fresh data out on Tuesday morning which showed that shop price inflation rose to its highest level in nearly two years in January.
Prices across all goods in shops rose by 1.5 per cent in January compared with the same month last year,according to industry data, up from a 0.7 per cent rise in December.
This suggests that inflation in the UK might continue to pose a problem for policymakers, which would slow the likely pace of interest rate cuts. The prospect of higher interest rates tends to attract international investors, pushing up the value of the currency.
Traders do not expect the Bank to resume cutting rates until July, with only one further cut anticipated in 2026.
But some analysts doubted whether sterling would be able to make much more progress against the dollar. “UK politics may well take its toll on sterling again over the coming months,” Chris Turner, a foreign exchange analyst at ING said.
“The next big date here is a UK by-election on 26 February. Should Labour lose its seat to Reform, more pressure will be heaped on PM Starmer and speculation will grow about a change of leadership after the local election results in May.”