Sterling climbed to its highest level against the US dollar in eighteen months on Friday, breaking through the $1.30 barrier for the first time since October 2024 as a combination of strong UK economic data and dollar weakness driven by concerns about the US fiscal outlook pushed the currency higher. The pound touched $1.3045 in London afternoon trading before settling back to $1.2980 at the close, still representing a gain of 1.4% on the week — its best weekly performance since January.
The immediate trigger for Friday’s move was the release of stronger-than-expected UK retail sales data, which showed consumer spending rising 0.8% in March, well above the consensus forecast of 0.3%. The data suggested that UK households, whose finances have been gradually improving as wage growth outpaces inflation, are becoming more confident in spending again after two years of restraint. Food retail showed the strongest growth, while clothing and footwear also performed well ahead of the Easter period.
The dollar’s weakness provided additional tailwinds for sterling. Growing concerns among international investors about the trajectory of US public finances — with the Congressional Budget Office projecting a federal deficit of $1.9 trillion in fiscal year 2026 — have weighed on the greenback over recent weeks, with the Dollar Index falling to its lowest level since July 2023. Some analysts have pointed to a gradual shift in global reserve currency allocations away from dollar-denominated assets as a structural factor compounding the cyclical pressures on the US currency.
Against the euro, sterling also made gains, rising to €1.1780 — its strongest level since the immediate post-Brexit adjustment period of 2020. The relative outperformance of the UK economy compared to the euro area, where German industrial weakness continues to drag on growth, has supported the pound’s appreciation against European currencies throughout the first quarter of 2026.
Currency strategists at several major banks revised their sterling forecasts upward following the week’s moves. Goldman Sachs raised its three-month target for cable to $1.32, while Deutsche Bank moved its six-month forecast to $1.35, citing the improving UK growth outlook and the likelihood that the Bank of England will move more slowly than previously expected in cutting interest rates.
For UK importers and businesses with dollar-denominated costs, the stronger pound provides welcome relief. Airlines, which purchase jet fuel in dollars, stand to benefit particularly, as do retailers sourcing goods from Asia. UK exporters, however, face a more mixed picture, as the stronger currency reduces the competitiveness of British goods in international markets.
— Edward Blackwell, London Capital Post
