Not since 2009 has the pound begun the year so bullishly, a sign traders believe higher U.K. interest rates are coming.
Britain’s currency has gained 4 percent this year on a trade-weighted basis as Bank of England officials said the next move in interest rates is likely to be up and that a slowdown in inflation is temporary. Sterling reached the strongest level in seven years against the euro on Thursday as data confirmed the U.K. gross domestic product grew for an eighth consecutive quarter. The pound touched an eight-week high versus the dollar.
“We’re still expecting a rate hike at some point and the GDP figure came out in line” with economists’ forecasts, said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London. “As long as we stay on the same track, I don’t see the pound weakening off substantially.”
According to an index comprising the currencies of its major trading partners, the pound was set for its best start to a year since 2009, when it gained 5.8 percent in January alone. While other European central banks are easing monetary policy, the Bank of England has signaled that it is still moving toward its first rate increase since 2007.