Pound hits highest level since December as investors turn their back on the dollar

The pound hit its highest level since Christmas today as investors turned their backs on the dollar.

Sterling rose by 0.6% to $1.3444 against the dollar.

The move comes after The Fed’s announcement last week that it would tolerate periods of higher inflation and focus more on employment.

At the same time US political uncertainty ahead of November’s presidential election and concerns about the pace of the recovery in the American economy have also weighed on the greenback.

The pound was also helped by some strong PMI data which signalled the UK manufacturing sector was bouncing back.

Yet analysts were cautious about the rise with Brexit negotiations still in a precarious state. The UK has so far failed to outline a trade deal with the European Union.

Russ Mould, investment director at AJ Bell: “Sterling’s rally from its March low of barely $1.14 to $1.34 will be a surprise to many, especially as the Brexit negotiations remain finely poised. The pound’s gains relative to the euro over the same period are much less pronounced so perhaps this is a story that speaks as much of dollar weakness as it does pound strength.

"America is still struggling with the COVID pandemic, the Federal Reserve seems happy to try and let inflation run hot and the Presidential election is coming. On top of all that, China still seems keen to wean itself off using the dollar and if it succeeds there will be a lot more dollars around, which is a long-term trend that all currency traders will be watching.”