British pound hits seven-week high against wilting dollar

British Pound Surges to Seven-Week High as Dollar Weakens and BoE Rate Decision Looms

Market Movements and Factors Influencing the British Pound

By Niket Nishant

Sterling's Performance Against Major Currencies

Nov 4 (Reuters) - The British pound rose to its highest level since September 15 on Wednesday, buoyed by a weaker US dollar following the Democrats' sweeping victory in the midterms, while traders awaited the Bank of England's policy decision on Thursday.

Sterling rose 0.63% against the dollar to $1.3495 at 10:22 GMT and was at 83.43 pence per euro, a touch firmer on the day.

Impact of US Political Developments

The pound benefited from a fragile dollar, after Democrats won control of both chambers of the US Congress.

UK Domestic Policy and Economic Outlook

The pound has been in sharper focus since British finance minister John Healey's budget, which laid out cautious tax and spending plans aimed at supporting households battered by "global economic storms."

Expectations Ahead of the Bank of England Decision

It has also drawn support from expectations of interest rate hikes by the Bank of England. Traders are pricing in a rate increase on Thursday, according to money market data.

Interest Rate Hikes and Currency Valuation

Higher rates typically boost a currency. However, some analysts believe much of the optimism is already priced in, leaving sterling with limited room for further gains.

Analyst Insights and Market Sentiment

"BoE hike pricing continues to look stretched relative to G10 peers, and valuation remains a clear challenge for Sterling," Goldman Sachs analysts wrote in a note.

Economic Projections and Potential Risks

Some economists polled by Reuters expect the ‌central bank to temper market bets on three to four increases in 2027.

"A 'dovish hike' would be a headwind for GBP, but we don't expect that it would do lasting damage with fundamentals improving," analysts at BofA Global Research wrote.

(Reporting by Niket Nishant in Bengaluru; Editing by Xevi Fontdegloria)