Sterling riding high on a wave of optimism

New evidence suggests that businesses are becoming more optimistic about the economic state and the pound rose to an 11-month peak.

Sterling remained the top-performing currency in the world with a 0.6% rise in the dollar to $1.25. This is the highest level since May 20,22.

Investors have boosted the pound in hopes that a stronger British economy would lead to higher Bank of England interest rates over the next few months.

New data from the British Chambers of Commerce shows that more than half of UK businesses expect their turnover will grow in the next 12 months. This is a surprise to many forecasters.

After monthly data from private sector shows a rebound in confidence, the quarterly survey follows sentiment dropping to new lows last year. A survey of 5,200 companies by the BCC found that only a third reported an increase in sales over the last three months.

At the end of 2018, the economy was not in recession. Official growth figures were upgraded to 0.1% quarterly growth for the fourth quarter 2022. In the coming months, a downturn is unlikely as consumers will be supported by energy subsidies from the government and inflation will fall quickly in the second half.

The declining dollar has had a further impact on the pound, with the latter falling from its 30 year records in late 2022. Sterling’s recovery comes after the dollar fell to an all-time low against sterling in the wake of Liz Truss’s mini-budget last Sept.

The money markets anticipate at least one rate increase from the Bank this summer, and they are expecting no further tightening by the Federal Reserve. This change in monetary policy should support the pound. Higher rates can lead to higher returns for investors.

Bank of America’s Kamal Sharma said that April has historically been a good month for sterling due to dividends being paid out by international companies listed in London.

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