The British pound rose on and is poised for its first quarterly gain against the dollar for the first time since 2015 as analysts bring forward their expectations of an interest rate hike from the United Kingdom.
Sterling reached an eight-week high of $1.2615 this week and was not far off that high at around $1.25 on Thursday.
It is up around 3 percent in the last two weeks as the increasing rate of inflation spurs expectations that the Bank of England is moving towards tightening policy, and is also benefiting from the weakening dollar.
Still, traders and strategists stated the main driver for sterling in the upcoming months would continue to be Britain’s negotiations with the European Union as it departs from the bloc, what fruit will those talks bear and what the economic fallout will be.
The pound went back and forth from rising and falling on Wednesday as British Prime Minister Theresa May formally commenced Brexit, ending the day lower.
The first test for markets is likely to come at the end of April when the EU will hold its first summit on Brexit. This is when the markets will hopefully gauge the tone of the negotiations and whether or not the EU wants to work with the UK to get a decent deal in the bag," strategists from City Index wrote in a research note.
"The UK’s economic resilience has been one of the sweet spots post Brexit (and) if this confidence starts to evaporate then it is hard to see how UK asset prices can continue to rally," they said.