Pound sterling hits two-month high against weaker greenback

The British pound has extended last week’s gains, rising to an over two-month peak against the weaker U.S. dollar. Sterling hit $1.2627 on Monday, building on increases seen after recent PMI data showed British companies unexpectedly returning to growth in November following three months of contraction.

“The most recent PMI data were good in the UK, implying that things are not as quite bleak as they seemed,” said Mizuho’s Colin Asher.

The pound’s rally comes as the dollar index slipped 0.2% to 103.22, bringing its monthly losses to over 3% – the greenback’s worst performance in a year. Traders are eyeing a peak in U.S. rates and focusing on potential timing for rate cuts in 2024.

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Market pricing shows a 23% probability the Fed could begin easing as early as March. “Investors appear increasingly preoccupied about betting on the timing and pace of rate cuts next year,” said Jane Foley, senior FX strategist at Rabobank.

Sterling is on track for a 3.8% monthly gain, its largest since November 2022. The pound has benefited from dollar weakness, starting the last week of November at over a two-month peak.