At more than 1.18 euros this week, the pound rose to its highest rate in almost a year and a half.
On Wednesday, the British currency hovered around the level that the exchange rate last reached in February 2020.
The short-term high was 1.20 euros at the time, before the pound fell to 1.08 euros in the Corona crisis.
Since the Brexit referendum in mid-2016, the sterling has almost always been below EUR 1.18.
Philip Plickert
Business correspondent based in London.
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Since June the pound has lost a bit against the American currency and is currently priced at 1.38 dollars. The latest appreciation from EUR 1.17 to EUR 1.18 is due to the relatively stronger economic recovery in Britain and the prospect of a less relaxed monetary policy. The Bank of England (BoE) has announced that a “moderate tightening” of monetary policy will be necessary within the next two years due to the inflation trend.
Some analysts believe a further appreciation of the pound is possible.
The major Italian bank Intesa Sanpaolo thinks the pound could rise to more than 1.20 euros in the next six months.
She justifies this mainly with the tendency to tighten the BoE.
The British currency will stay below 1.40 against the dollar.
Goldman Sachs has also updated its forecast for the pound after the BoE meeting and raised it slightly, but remains cautious.
In the opinion of the investment bank, British monetary policy will rather disappoint the expectations of some market participants for interest rate hikes in the near future.
Inflationary pressures are only increasing temporarily
The majority of market analysts believe that the Central Bank of London will raise the key interest rate from the current record low of 0.1 percent to 0.25 percent in 2022. According to Goldman Sachs, there is still so much untapped potential in the labor market that wage growth and inflation will tend to rise more slowly.
The BoE raised its inflation forecast last week. According to this, the inflation rate will rise from the current 2.5 percent to 4 percent in autumn, which is mainly due to higher energy prices and bottlenecks in global supply chains. In the opinion of the central bank, however, inflationary pressure will only increase temporarily. As a result, it refrained from applying the brakes on monetary policy immediately. According to current forecasts, the UK economy will grow by 7 to 8 percent this year, more than most developed economies. According to the BoE, the pre-corona level of economic activity could be reached again by the end of the year.