LONDON: The British pound held its ground on Friday and was set to post a second consecutive weekly gain as expectations of rising interest rates propped up the currency.
Against the US dollar, the pound edged 0.2% higher at $1.3577 but was set to rise 0.3% for the week. Versus the euro, the pound gained 0.5% at 83.89 pence.
The pound’s strength against the dollar was in stark contrast to the greenback’s other major rivals, which weakened in early London trading amid rising expectations of US interest rate increases in the coming weeks.
As much as another 150 bps in increases are priced in for the remainder of the year by the Bank of England compared to nearly 170 bps by the US Federal Reserve. Lukewarm monthly economic growth data in December failed to weigh on the pound. Britain suffered a smaller economic hit than feared in December as COVID-19 cases mounted, capping a historic two-year collapse and rebound for the world’s fifth-biggest economy, but surging inflation is set to slow the recovery in 2022. Analysts say slowing economic growth in the second half of the year would weigh on the pound.
“The recovery will probably lose momentum in the course of the year,” Commerzbank strategists said in a note. “High inflation, tax increases in April and the BoE’s interest rate hikes are a burden on the economy.”