Recently, the pound exchange rate has shown a significant upward trend.

 

 

The pound has been climbing since the last time GBP/CNY fell below 9 on 3 February.

 

 

On February 14, the exchange rate of the pound against the yuan rose to the highest level of 9.16 this year!

 

 

As of February 17, the pound was trading at a maximum of 9.13 against the yuan.

 

 

 

Source: Sina Finance

 

 

So, what are the factors that are driving the continued rise of the pound exchange rate?

 

Reasons for the rise of the pound

 

 

1. The dollar weakens

 

 

The recent weakness of the US dollar is a significant reason for the strength of the pound.
 

The U.S. dollar index fell as expectations of a slower pace of Fed rate hikes rose due to slowing U.S. inflation data.
 

At the same time, U.S. President Donald Trump announced his decision to impose reciprocal tariffs that would equal the rates imposed by the U.S. and its trading partners, and said he would consider imposing tariffs on countries that use the value-added tax system.

 

 

 

 

However, the memorandum did not specify the timing of the imposition of reciprocal tariffs, which amounted to the imposition of reciprocal tariffs that were not immediately implemented, leaving room for a negotiated settlement of trade disputes, leading to a weaker dollar.

 

As one of the major non-US currencies, the British pound has naturally gained upward momentum against the backdrop of a weaker US dollar, especially since the GBP has climbed significantly against the US dollar.

 

 

2. UK economic data improves

 

 

The recent strong economic data from the UK has provided strong support to the pound.
 

According to Reuters, new official data released this week showed that the British economy unexpectedly grew by 0.1% in the fourth quarter of 2024.

 

 

 

 

This provided a respite from the already gloomy economic outlook in the UK, and the pound rose in response.

 

 

3. Bank of England policy expectations

 

 

The Bank of England (BoE) recently made a slight adjustment to its interest rate policy, which directly led to an increase in market confidence in the pound.
 

Although UK inflation has eased, it is still above the central bank's target, which makes investors expect further rate hikes by the Bank of England.
 

As US economic indicators fluctuated, investors began to reassess the risks and benefits of holding the pound, which drove the pound higher.

 

 

4. Political uncertainty eases

 

 

The domestic political environment in the UK has stabilized, and the negative impact of Brexit is gradually being digested by the market.
 

Although Brexit has put pressure on the pound for a long time, concerns about the UK's economic outlook have eased as the UK and the EU reach more agreements on issues such as trade.
 

In addition, the UK government's fiscal policy has become more robust, which has also reduced the uncertainty premium on the pound and strengthened investors' confidence in the pound.

 

 

5. Rising trade activity

 

 

 The recovery of the global economy is gradually emerging, and the activity of international trade is gradually picking up, especially the trade between China and the UK is accelerating, which makes the demand for the pound grow.
 

In addition, the growth of the pound exchange rate has further strengthened investors' interest in sterling assets.

 

 

The pound may fall in the future

 

 

 

 

Although the UK economy has grown faster than expected in four quarters, there are still concerns about the economic outlook in 2025.
 

Anna Leach, chief economist of the Institute of Directors, a think tank, pointed out that the resistance to British economic growth is increasing this year, and the uncertainty brought by the international environment has led to the rapid weakening of the British labor market.
 

In the face of uncertain prospects such as tariffs, labor markets, and geopolitical situations, the UK economy will continue to be in a weak recovery state in 2025, and the Bank of England will adopt a relatively loose monetary policy.
 

The Bank of England will announce its next monetary policy decision on March 20, and the next round of interest rate cuts by the Bank of England may occur in May-June, which will put downward pressure on the pound exchange rate and cause the pound to weaken.
 

Of course, it is still unknown whether the pound exchange rate will fall in the future, and its exchange rate still needs to be analyzed according to the Bank of England's policy, economic data and global market dynamics.

 

 

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