The pound has hit its highest level against the US dollar since the beginning of August, as investors continue to bet on falling US interest rates in 2024.
Sterling has climbed to $1.2825, its highest level in almost five months, as the dollar weakens in somewhat thin trading this morning.
Traders are anticipating that the US central bank, the Federal Reserve, will cut interest rates briskly in 2024, as inflation in America continues to cool.
Soft US economic data is helping to weaken the dollar.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Released yesterday, the Richmond Manufacturing index came in much softer than expected – hinting at a significantly faster slowdown in economic activity in December, shipments also contracted significantly compared to a year ago.
US interest rates are currently a range of 5.25%-5.5%; and could fall to 3.5%-3.75% by December 2024, according to CME Fedwatch.
UK interest rates are also expected to fall next year, though, from 5.25% today to as low as 3.75% by next December, according to the latest money market pricing.