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"Sterling the belle of the ball" as Pound soars to fresh 39-month high

ended 21. May 2025

The pound rose to its highest level since February 2022 this morning, reaching $1.34685 vs the US dollar after hotter-than-expected UK inflation data. Newspage asked forex experts, traders, economists and wealth managers whether this run will continue, who could benefit or lose out, and if the UK's precarious economic outlook could cap potential gains for the currency. Views below.

7 responses from the Newspage community

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Prem Raja
Head of Trading Floor at Currencies 4 You
Sterling jumped this morning after UK inflation surprised to the upside, coming in at 3.5% versus expectations of 3.1%. The higher print has fuelled speculation that the Bank of England may hold off on cutting interest rates, which in turn has pushed GBPUSD to a 39-month high. While the spike in inflation offers short-term strength for the Pound, we don’t expect this momentum to last. Markets are still pricing in rate cuts later this year, and global headwinds could quickly reverse this rally. For businesses or individuals with USD exposure, this may be an opportune moment to take advantage of the rates while they remain elevated, particularly with tools like forward contracts or market orders that can help lock in gains and mitigate future volatility.
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Harry Mills
Director at Oku Markets
Sterling has benefited from a broadly softer US dollar, which now appears to be giving back most of its gains after four consecutive weeks of advances. The pound notched gains of nearly 1.5% on the week against the embattled dollar, with a rally on Wednesday morning taking the price to its highest since February 2022. UK inflation data for April came in hotter-than-expected at 3.5%, with energy prices driving most of the rise. Chancellor Reeves' April increase to the minimum wage and national insurance contributions won't have fully fed through into the system yet, so inflation may remain stubbornly high - something the Bank of England's chief economist, Huw Pill, has expressed concerns over this week. Markets have reduced bets on future rate cuts from the Bank of England this year, and the pound has gained, but against a backdrop of anaemic growth — Q1 GDP was a pre-tariff export blip — and a precarious fiscal position, the pound may not hold onto these highs for long.
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Faisal Sheikh
Managing Director at Monmouth Capital
For UK private investors holding diversified portfolios with lots of international assets, most frequently priced in US dollars, the pound strengthening is bad news, as the value of those dollar-denominated assets when converted back to Sterling is lower. Major currencies rise and fall against each other all the time and these fluctuations tend to wash out over months or years, so ordinarily I would say this recent move isn't a particular cause for concern. However, there is mounting evidence of a structural shift away from the US dollar that could unfold over a decade or more. If this turns out to be the case, UK-based investors should ask their financial advisers whether it's time to look at hedged share classes, in other words those which remove the currency risk. Otherwise, gains in international holdings could be held back by further Sterling strength.
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Gabriel McKeown
Political & Economics Writer at Sad Rabbit - Substack Newsletter
The pound is on a tear, reaching a three-year high against the dollar, driven by a shock inflation print that has all but guaranteed a massive reconsideration in the Bank of England's monetary policy timeline. The pound’s return to pre-pandemic territory is a pointed reminder that inflation is proving considerably stickier in Britain than many would have hoped, as the Bank of England's chief economist warned that interest rates have been cut too rapidly. This renewed caution from the central bank has made Sterling the belle of the ball for investors seeking higher yields, and if this relatively hawkish stance remains, the pound could continue its upward dance, potentially reaching the 1.4 mark against the dollar in the near future. However, the economic outlook for Britain remains uncertain, and any further signs of weakness could rapidly reverse the pound’s trajectory, making its current ascent that bit more perilous.
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Tony Redondo
Founder at Cosmos Currency Exchange
Importers should act fast. This rally may not last. The Pound’s surge this morning to a 39-month high after UK inflation hit its highest level in over a year in April is a mixed blessing for the UK. Importers gain as the stronger pound cuts costs, but only yesterday, BoE Chief Economist Huw Pill warned that rate cuts may be happening too quickly, with inflation’s downward momentum “stuttering”. The markets have already reduced their interest rate cut expectations for the rest of this year, which could keep borrowing costs higher for longer. Consumers face rising prices, high borrowing costs, tariffs and unemployment. Despite currency gains, businesses are struggling and then some with rising costs and taxes that limit investment. Economists see a flatlining 0.75% economic growth capping the pound’s run, leading to stagflation fears. The BoE’s cautious stance may bolster sterling short-term, but systemic issues threaten sustained gains.
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Scott Gallacher
Director at Rowley Turton
Sterling’s surge offers some short-term relief for UK consumers and holidaymakers, but it’s a headache for Rachel Reeves’ growth agenda. A stronger Pound makes UK exports less competitive — especially to the US, where many goods still face 10% tariffs despite the recent UK–US trade deal. For UK firms, the combination of a rising currency and persistent trade barriers could deliver a double hit — not least for the Government, if it’s counting on export-led growth to drive the economy forward.
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David Belle
Founder and Trader at Fink Money
There is a material repricing of interest rate expectations following the CPI print that came in at 3.5% vs expected 3.3% on Wednesday. After the Bank of England recently cut, the difference in expectations of rates right now versus rates in the future drives capital towards sterling. This doesn't mean there is a preference towards UK assets. No, it means there is merely a liking for sterling right now as rate differentials are the most important factor in short to medium term FX moves.