The British pound sterling surged to all-time highs against the U.S. dollar in early July as British interest rates continue to rise. “The U.S. interest rate policy is no longer setting the tone for the rest of the world,” says Todd Gordon, currency strategist at Gain Capital. “Now it’s the overseas countries that we will be taking our cues from,” and the all-time high for the euro and the pound sterling reflect that, he says. With the pound breaking the 1992 high of 2.0100, strong inflation data in the U.K., and talk of another rate hike on top of the recent 50-basis point hike, we are in uncharted territory, he adds. In August, Gordon expects volume and volatility to cool as Europeans go on vacation, but adds that based on Fibonacci extensions, we are heading eventually for 2.1096.
Joe Trevisani, currency analyst at FX Solutions, says that Federal Reserve Bank Chairman Ben Bernanke is still leaning towards a tightening, and the British and European Central Banks could raise rates at least once more this year. “Is the British economy that much stronger, on the fundamentals, than the United States? I don’t think so,” he says, adding that volatility has lead to a speculative frenzy in the pound, but he is looking for the top and a nasty reversal. In August he expects the pound sterling to trade between $2.01 to $2.03.
