The pound rose above $1.30 for the first time since November on bets UK interest rates will stay above those of other major currencies this year.

Sterling rose 0.1% on Tuesday to $1.3001, also supported by a broadly weaker dollar amid concerns about U.S. economic growth and uncertainty over the outlook for trade tariffs. The currency has gained nearly 4% this quarter.

The Bank of England meets this week and is widely expected to keep interest rates unchanged at 4.5%, as rising inflation and geopolitical uncertainty support a gradual pace of easing. Traders see the BOE lowering borrowing costs by 51 basis points by the end of the year, less than the 60 basis points expected from the Federal Reserve. The U.S. central bank also meets this week and is widely expected to keep rates at 4.5%.

The divergence in policy outlooks is reflected in the bond market. Britain's benchmark 10-year bond yields its highest against U.S. Treasuries since late 2023, boosting the pound's appeal.

In options markets, sentiment toward sterling remains negative due to concerns about a global economic downturn, but is now near its least bearish level since October.

Although data last week showed Britain's economy unexpectedly shrank in early 2025, driven by a decline in manufacturing and construction, there are hopes that Britain's plans for a big infrastructure spending spree will support growth.

The British government also reaffirmed its commitment to U.S. trade last week when Prime Minister Keir Starmer said his government would keep "all options" on the table in response to U.S. President Donald Trump's global steel and aluminum tariffs.

Source: Bloomberg