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Sterling steady but set for 5% rally in 2023
Global Banking & Finance Review®
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By Harry Robertson
LONDON (Reuters) – The pound was little changed in subdued trading on Wednesday but remained on track to be one of the best performing currencies in 2023.
Sterling was last down 0.06% at $1.2716, off a four-month high of $1.279 touched earlier in December.
It was also slightly lower against the euro, with the single currency up 0.22% at 86.95 pence.
The pound has climbed more than 4% against the dollar over the last three months and is on track to finish the year around 5% higher. That compares to a 3% rise for the euro and an 8.5% fall for the Japanese yen.
Investors expect that the Bank of England will not be able to cut interest rates as much as the Federal Reserve and European Central Bank, given that inflation is running higher in the UK.
That has widened the gap between British bond yields and those in the U.S. and Europe, making them look more attractive and boosting the pound.
However, a bigger than expected drop in UK inflation to 3.9% in November has complicated the idea that the BoE will be a laggard.
Traders now expect more than 140 basis points of rate cuts from the BoE in 2024, compared to more than 160 and 150 from the ECB and Fed respectively.
The dollar index, which tracks the greenback against six other major currencies, eased less than 0.1% on Wednesday to 101.42.
Trading volumes were thin, with many market participants still off for the holidays and next to no economic data releases scheduled.
(By Harry Robertson; Editing by Kirsten Donovan)
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, maintaining monetary stability, and overseeing the financial system.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the amount borrowed or saved.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
Foreign currency refers to any currency that is not the domestic currency of a particular country, used in international transactions.
Currency hedging is a financial strategy used to reduce the risk of adverse price movements in foreign exchange rates.
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