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Pound surges to become best performing currency this year

The pound has surged to become the best performing currency among developed economies this year with the Bank of England expected to carry on raising interest rates.

Sterling has gained 2.3pc against the dollar this year, ahead of all others in the so-called G10 group of major economies.

Over the last month, the pound has gained 3pc against the dollar - surpassing even all currencies in emerging economies - and flying in the face of scepticism about the outlook for the UK economy.

Both the Bank of England and Office for Budget Responsibility have improved their outlooks over the last month, with the latter saying the UK will avoid a recession this year.

Francesco Pesole, FX strategist at ING, said: "The pound is set to be the best-performing currency of the first quarter of 2023, having gained 2.5pc against the dollar.

"Along with the improvement in the economic outlook, sterling is definitely drawing benefits from the market’s conviction that the Bank of England will need to continue raising rates."

Traders are betting there is a 75pc chance that interest rates will increase by 0.25 percentage points in May. They are pricing in a 52pc chance of another hike of the same amount in June.

It comes as a closely watched measure of inflation in the US slowed sharply last month, suggesting the Federal Reserve may be close to ending its aggressive programme of interest rate rises.


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