Pound climbs to highest level against dollar in almost a year

The pound has climbed to its highest level against the dollar in almost a year as the US banking crisis spreads.

Sterling rose to $1.26 on Friday morning, an increase of half a cent – its greatest recovery since late May 2022.

Last autumn, the pound plummeted to its lowest level against the dollar in history, as the markets responded nervously to the announcement of then-prime minister Liz Truss and chancellor Kwasi Kwarteng’s disastrous mini-budget, which ushered in the nation’s biggest tax cuts in 50 years.

While Mr Kwarteng’s promise of relief for those earning more than £150,000 faced a swift scrapping by his successor Jeremy Hunt, the pound has endured a long road to recovery – having plunged to around $1.03 last year.

Sterling was up 0.21 per cent at $1.26 on Friday, after reaching $1.263 earlier in the session.

Meanwhile, the euro was down 0.14 per cent against the pound at 87.49p, after earlier falling to 87.42p, the lowest since 6 April.

The pound is thought to have received a boost from the US Federal Reserve meeting this week, when the central bank raised rates by 25 points but signalled that it may stop there.

A rapid slowdown in US inflation and the Fed approaching the end of its hiking cycle has sent the dollar down against a range of currencies.

The dollar index, which measures the US currency against its major peers, was down slightly on Friday and was 0.34 per cent lower for the week.

Traders broadly expect the Bank of England to raise interest rates by 25 points to 4.5 per cent on Thursday next week. They then see rates climbing to a peak of around 4.8 per cent later in the year.

With additional reporting from Reuters