Rally: Sterling rose to just below €1.18 against the single currency, its highest level since August 2022
The pound has hit its highest level against the euro in almost two years, in a boost for British tourists enjoying a mid-term break.
Sterling rose to just below €1.18 against the single currency, its highest level since August 2022, before later giving up some of its gains.
The UK currency has strengthened against its continental counterpart thanks to the likelihood that Bank of England interest rates will remain higher for longer than in the eurozone.
Markets are betting that the UK will see just one interest rate cut this year, in September, while the European Central Bank (ECB) is seen as likely to cut it twice in 2024, starting next week.
The pound has also strengthened against the US dollar, hitting a two-month high of $1.28 earlier this week before sinking again yesterday to just over $1.27.
The strength of the pound against the euro provides a boost to Britons who see their pounds stretched further in Paris bakeries or Portuguese golf resorts.
But it is bad for exporters, since it makes their products more expensive for foreign customers.
Yesterday’s movements in the exchange rate were a reaction to German inflation data, although neither figure did anything to alter expectations of an ECB rate cut in June.
Recent strong economic data from the UK is also supporting sterling.
Analysts at MUFG bank said: “We continue to see accumulating evidence pointing to a real GDP recovery that is stronger than expected as the UK finally overcomes the energy price shock of 2022-23.” .
