Sterling has risen to $1.38 against the US dollar, its highest level since October 2021, as a combination of US economic disruption, changing interest rate expectations and geopolitical uncertainty weakens the greenback.
Currency analysts said the move was due to weakness in the dollar rather than a sudden strength in the pound, creating a rare buying opportunity for consumers and businesses in need of U.S. currency.
The rally follows heavy snow and ice across the United States caused by Winter Storm Fern, which left nearly 600,000 homes without power and resulted in thousands of flight cancellations. Economists estimate the disruption could knock as much as 1.5 percent off U.S. GDP growth in the first quarter.
Markets are also pricing in increasingly lower U.S. interest rates later this year, reducing the dollar’s yield attractiveness against sterling. At the same time, heightened political uncertainty surrounding Donald Trump and continued volatility in commodities, including record-high gold and silver prices, have turned investors away from the dollar.
Tony Redondo, founder of Cosmos Currency Exchange, said the pound’s rise reflected a “perfect storm” of factors.
“The pound’s rise to $1.38 is being driven by US dollar weakness and interest rate expectations in the UK,” he said. “Investors are turning away from the dollar because of concerns about trade tariffs and the independence of the Federal Reserve.
“Meanwhile, continued inflation in the UK suggests the Bank of England may keep interest rates high for longer, attracting global capital. While some are eyeing a move towards $1.40, the rally could be nearing its peak as traders begin to take profits.”
Redondo added that current levels are attractive for those in need of dollars. “At $1.38, you’re getting almost 11 percent more value than you were at this time last year. It’s nearly impossible to pinpoint the all-time high, but buying now locks in a four-year high.”
Prem Raja, head of trading room at Currencies 4 You, agreed that the move was largely due to dollar weakness.
“Sterling’s rise to 1.38 is due far more to the weakness of the US dollar than to the strength of the pound,” he said. “Markets are increasingly pricing in lower US interest rates, reducing the attractiveness of the dollar and encouraging investors to exit USD exposure.
“These pressures were compounded by political uncertainty, renewed labor talks, the risk of a government shutdown and President Trump’s comments that signaled little concern about a weaker dollar.”
Raja said $1.40 was the next psychological level, but warned that short-term pullbacks were likely after such a strong move. “For those who need to buy dollars, these levels represent a very favorable window,” he added.
Riz Malik, director at R3 Wealth, suspects the dollar’s weakness may be intentional.
“The dollar is supposed to represent stability, but the U.S. is anything but stable right now,” he said. “A weaker dollar can support exports, so this may even be intentional.”
While analysts warn that currency markets can turn quickly, the pound’s rise to its highest level in more than four years underscores how global economic and political shifts are altering currency dynamics – and why many believe the current window favors sterling buyers.
