Pound hits four-year high against dollar

Sterling has surged to $1.38 against the US dollar, marking its strongest level since October 2021. This development is attributed to a combination of US economic disruption, changing interest rate expectations, and geopolitical uncertainty, which have collectively weakened the dollar.

Currency analysts suggest that the movement is driven more by dollar softness than by a sudden strengthening of the pound, presenting a rare buying opportunity for consumers and businesses requiring US currency. The rally comes in the wake of significant disruption in the United States due to Winter Storm Fern, which resulted in almost 600,000 homes losing power and thousands of flight cancellations. Economists estimate that these events could reduce US first-quarter GDP growth by up to 1.5 per cent.

Markets are increasingly factoring in lower US interest rates later this year, diminishing the dollar’s yield appeal compared to sterling. Additionally, heightened political uncertainty related to Donald Trump and ongoing volatility in commodities, including record-high gold and silver prices, have deterred investors from the dollar.

Tony Redondo, founder of Cosmos Currency Exchange, described the pound’s rise as a “perfect storm” of factors. He noted that the ascent to $1.38 is primarily due to US dollar weakness and UK rate expectations. Investors are moving away from the dollar due to concerns over trade tariffs and the independence of the Federal Reserve. Meanwhile, persistent UK inflation suggests the Bank of England may maintain higher rates for longer, attracting global capital. Although some anticipate a move towards $1.40, Redondo cautioned that the rally might be nearing its peak as traders start taking profits. He added that for those needing dollars, current levels are attractive, offering nearly 11 per cent more value than the same time last year.

Prem Raja, head of trading floor at Currencies 4 You, concurred that the move was largely due to dollar weakness. He stated that markets are increasingly pricing in lower US interest rates, reducing the dollar’s appeal and encouraging investors to reduce USD exposure. This pressure is exacerbated by political uncertainty, renewed tariff discussions, the risk of a government shutdown, and President Trump’s remarks indicating little concern about a weaker dollar. Raja identified $1.40 as the next psychological level but warned of potential short-term pullbacks following such a sharp move, noting that current levels represent a favourable window for those needing to buy dollars.

Riz Malik, director at R3 Wealth, suggested that the dollar’s weakness might be intentional, as a weaker dollar can support exports. He remarked that while the dollar is supposed to represent stability, the US is currently anything but stable, implying that the situation could be by design.

Despite analysts’ caution that currency markets can change rapidly, the pound’s rise to its highest level in over four years underscores how global economic and political shifts are influencing currency dynamics. Many believe the current circumstances favour sterling buyers.