With a gain of more than 5% against the U.S. Dollar in November 2022, the pound managed to achieve its largest monthly increase since July 2020, even if other currencies, such as the Japanese yen and the Swiss franc, had larger gains against the greenback.
The value of one pound sterling relative to one US dollar has increased by approximately 10% over the course of the past three months, currently hovering above the $1.22 mark. This is primarily attributable to the decline in value of the US dollar, as well as the positive reception that investors gave to the United Kingdom’s Prime Minister, Rishi Sunak.
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The weakness of the USD helped the GBP/USD pair to climb higher
One of the factors that contributed to the significant rise in the value of the GBP/USD pair over the previous month was the decline in the value of the United States Dollar, which fell by about 5% according to the future contract on the Dollar Index (December 2022).
As a result of the various indications that the Federal Reserve may soon lessen the magnitude of its rate rises, investors moved their money away from the American dollar to invest in other currencies that had recently lost a lot of value, such as the GBP and the EUR.
Keep in mind that rate differentials and expectations of future rate rises are two of the factors that have the most influence on the value of currencies. Investors who feel the Federal Reserve may have to reduce the rate at which it is increasing interest rates in order to avert a recession may look to countries in which they believe interest rates will continue to rise as a result of growing inflation.
Investors seem to have more faith in Rishi Sunak than the previous prime minister of the United Kingdom
Rishi Sunak, the current Prime Minister of the United Kingdom, is a former investment banker and hedge fund manager who switched careers and entered politics. This may be why the financial markets have been relatively kind to him since he took office at No. 10., as they seem to believe that he might adopt more business-friendly measures.
However, now that the specters of Liz Truss and Kwasi Kwarteng are completely in the past, the pound is going to need some positive news in order for it to continue the rally that it has been putting in over the last few months.
The next Bank of England meeting on December 15th will be closely monitored by investors and traders to have clues about the future actions of the country’s central bank to fight inflation.
