Sterling Hits Six-Month High on Weak Dollar and Rate-Hike Bets

The British pound continued its rally on Friday, marking its fourth consecutive weekly gain. The currency's strength is attributed to a weak dollar and recent economic data that has kept rate-hike bets alive.

Sterling was trading at $1.3658, near its highest level since February. However, economists polled by Reuters expect the central bank to keep borrowing costs unchanged this year, while traders are pricing in at least one increase in 2026.

This mismatch between market expectations and economic data could put pressure on the pound's gains. Despite this, some investors believe that inflation and GDP data suggest that the Bank of England may need to raise interest rates, which would typically support the currency.

Brock Weimer, an analyst at Edward Jones, noted that inflation running above comfort levels gives the BoE room for hikes this year and a strong chance for additional hikes through 2027 if inflation doesn't come down.