The pound reached a four-month high against the dollar as hopes raised that Chinese lockdowns would ease and American interest rates increases would slow.
One pound could buy nearly $1.23 on Thursday afternoon, the highest amount since 1 August, making imports cheaper for UK companies and consumers.
The £1 to $1.2297 foreign exchange rate signalled a weakened dollar as only last week a dip in the US currency allowed for a pound rise not seen since mid-August.
A stronger pound is good news for businesses and consumers and could help lower inflation as importing goods, such as food and petrol, becomes cheaper.
It’s a nearly 20 cents rise in sterling buying power from an all-time low in the days following the September mini-budget and the associated market upset. The story is one of more positive global sentiment and a waning dollar rather than pound strength as the dollar fell against most currencies, but the pound also grew against the euro and on Thursday afternoon £1 could buy nearly €1.17 (€1.1695).
Market hopes were lifted as, following days of protests against China’s zero-COVID policy, there are signals the Chinese government will lift restrictions.
On Thursday, major Chinese cities started to ease restrictions following protests. Less than 24 hours after violent protests in Guangzhou, officials in at least seven districts of the sprawling port city north of Hong Kong announced they were lifting lockdowns.
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The lockdowns had dampened economic activity at the word’s second-largest economy, which had weighed on global trade and disrupted global supply chains.
The four-month high also follows news from the Federal Reserve, known as the Fed, that the central bank is to slow the pace of interest rate rises.
Speaking at a think tank on Wednesday, chair Jerome Powell said the Fed may increase its interest rates by a smaller amount at its December meeting, perhaps by only 0.5%, after four straight 0.75% hikes.
Rates had been continuously hiked by the Fed in an effort to reduce inflation to its 2% target but US inflation stood at 7.7% in the year up to November.
