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Sterling rallied on Tuesday on improved risk sentiment as Rishi Sunak became Britain’s prime minister, while the dollar dropped to a three-week low as weakening U.S. economic data tempered expectations for the pace of future U.S. rate hikes.
The potential for volatility is elevated in the foreign exchange market this week, with central banks in the euro zone and Canada expected to hike rates by 75 basis points, and the Bank of Japan set to maintain ultra-low interest rates to support its fragile economy.
Rishi Sunak became Britain’s third prime minister in two months on Tuesday, tasked with tackling a mounting economic crisis and a warring political party.
Sterling surged to its strongest level since Sept. 15, and was last up 1.64% at $1.14675, but currency strategists expect the pound to remain under pressure.
«Beyond a brief honeymoon phase rally, I think the daunting road ahead for the UK economy is likely to cap sterling gains,» said Joe Manimbo, senior market analyst at Convera.
The U.S. dollar was broadly weaker amid signs that Federal Reserve rate hikes are slowing the world’s biggest economy.
