Pound Climbs to 2025 High After Worst Start to Year Among Peers
Source: Live Mint
(Bloomberg) — The pound climbed to its highest level this year against the dollar as traders covered short positions built up during a selloff in January.
The UK currency rose 0.2% to 1.2596, a level last seen on Dec. 30. It has gained more than 4% in the past month, recovering from a tumble to $1.21 in January. It was little changed against the euro.
Most major currencies strengthened against the dollar on Friday after US President Donald Trump’s latest announcement on trade tariffs fueled optimism that they will take longer than expected to implement. Most in the market are betting that the UK won’t be targeted at all.
“The pound may have picked up a bit of support because US data suggest that the US has a trade surplus with the UK,” said Jane Foley, head of G10 FX strategy at Rabobank. She added, however, that a convincing recovery in growth will be needed to sustain a rally.
Traders have been covering short bets they built up when concerns were brewing about rising UK borrowing costs. Data released on Thursday the economy grew slightly at the end of last year has also offered some respite, while traders have reduced their predictions on interest rate cuts this year to two from three.
“Sterling is going to continue to perform well,” said Ales Koutny, head of international rates at Vanguard Asset Management. “If we expect the Federal Reserve to remain on hold this year, it’s hard to see the Bank of England cutting another three times.”
Options traders are still bearish on the pound, but conviction has been waning. The premium to sell the UK currency versus the dollar narrowed by around 30 basis points this week and one-month volatility in the pound-dollar pair has fallen to its lowest level since Dec. 19.
Still, some in the market predicted the rally may soon sputter. Neil Jones, managing director at TJM Europe, warned the short covering rally may hit a wall when technical resistance reaches around 1.2680, the pair’s 100-day moving average.
“Once the short reduction is done and the market has moved to flat, then the pound’s rally is over,” Jones said.
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