What the pound weaken or rise in December?

Sterling has been a mixed performer, of recent weeks rising and falling in the last few weeks as a range of factors dictate direction. Whilst overall, the pound has been performing more strongly since the lows of September and October, we are still well below some of the higher points of 2022.

Sterling of course suffered at the hands of the Liz Truss and Kwasi Kwarteng administration and the infamous ‘mini-budget’ that saw multi-year lows for sterling against the US dollar of 1.03 and GBPEUR of 1.07.

Recent movements higher have been over 1.21 on GBPUSD and 1.16 on GBPEUR, representing a clearly much greater performance. This is in part down to rising confidence that the UK economy is on a better footing under the new administration of Rishi Sunak, and also Jeremy Hunt as Chancellor.

Sterling has as we finish November been a little weaker however, as investors become cautious once again to the economic outlook for the UK. The Bank of England has predicted a long and deep recession for 2023, which might well extend into 2024.

Looking at December in more detail, December 15th is the latest Bank of England interest rate decision, which can often be a market mover. With the UK having embarked on a series of interest rate hikes in the last year, December will mark the one-year anniversary since the UK first launched its latest rate hike cycle.

The pound has been better supported because of higher interest rates, since typically speaking, the higher an interest rate, the stronger that currency will often be. What will be interesting is the commentary from the Bank of England, to see what kind of pace of hikes they anticipate for 2023.

With inflation worryingly high for the UK, policy makers have had a very tough job to ensure that they are tackling rising prices, but also not totally choking off what economic recovery is out there.

Sterling has been written off by many investors and forecasters in recent weeks, but could we be in for some surprise upside in the busy December trading period?

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