The pound is outpacing the dollar, thanks to a surge in bullish investor sentiment. Further gains are anticipated, especially with this week's data revealing that UK business activity is among the strongest globally.
Monthly business activity surveys are poised to confirm Britain's leading position in February, surpassing both the euro area and even the United States, which notably avoided contraction last year.
According to economists surveyed by Reuters, UK business activity is expected to climb to 52.7 in early February. This growth is fueled by a robust uptick in service sector activity, reaching its swiftest pace since May last year.
In 2024, the pound has only declined by 0.9% against the dollar, rebounding from a 1.5% loss earlier in the year.
Just four months ago, the International Monetary Fund projected the UK to be the G7's slowest-growing economy in 2024.
Since then, significant shifts have occurred, with Germany slipping into recession and France seeing minimal growth. Recent data also revealed that the UK underwent two consecutive quarters of negative growth last year.
Over the past few months, investors have witnessed an uptick in sterling yields, primarily driven by the expectation that ongoing inflation will force the Bank of England to maintain high interest rates for an extended period of time.
According to weekly data from the Commodity Futures Trading Commission (CFTC), speculators amplified their bullish stance on sterling to $3.971 billion in the week ending February 13, slightly below the nine-year high recorded last July.
Leveraged funds, encompassing hedge funds and money managers, have significantly bolstered their long positions in sterling since early December. They are currently placing substantial wagers on the pound's ascent since October.
Apart from the allure of the pound, investors are likely to find encouragement in the data. In January, JPMorgan revised its projection for UK economic growth through 2024.
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