The surprise market winner of 2024: The Great British Pound

livemint.com:

Subscribe to enjoy similar stories. “Credit rates are going up, up, up and the British pound is the envy of the world," exclaims Mr. Banks in the 1964 classic film “Mary Poppins." For the first time since the U.K.

chose to leave the European Union, there may be some truth to that statement. In September, sterling gained more than 1% against a broad basket of trading currencies, according to data from the Bank of England. Year-to-date, it is up 4.7%, thanks to gains of 4.7% and 4.1% against the U.S.

dollar and the euro, respectively. This makes the pound the best performer among currencies issued by Group of Ten, or G-10, developed nations. It is now only a hair’s breadth away from reaching its level on the day of the Brexit referendum on June 23, 2016.

This is an important turnaround story for a currency that has been derided by traders over the past few years for being volatile, in contrast to its onetime status as the reserve currency of the world. During this time, it has been dubbed many names in jest, such as the “British lira." Now, however, it seems difficult to make a case against it. For one, credit rates in Britain are indeed high and look set to fall at a far slower pace than elsewhere.

In September, eight out of nine members of the Bank of England voted to leave benchmark interest rates unchanged at 5%. Right after, the Federal Reserve decided to do a jumbo half-percentage-point cut, leaving U.K. money markets as the highest-yielding in the G-10.

More importantly, markets are pricing in that the BOE will remain more hawkish going forward: Derivatives markets currently suggest that borrowing costs in the U.K. will be set at 4.3% six months from now. In the U.S., they are expected to be below 3.5%.