LONDON, April 26 - Sterling rose against the dollar on Wednesday, as traders pared back their holdings of safe-haven assets after U.S. banking jitters sparked a rush for safety the day before.
At 1015 GMT, the pound was 0.49% higher against the dollar at $1.2471 .
"Despite expectations of the Bank's terminal rate falling as financial stability concerns cross the Atlantic, the pound has almost retraced all of yesterday's losses as FX traders look to divest out of the dollar today," said Simon Harvey, head of FX analysis at Monex Europe.
The U.S. dollar had moved higher overnight on concerns over the U.S. banking sector and the economy, along with the safe-haven yen, but this reversed on Wednesday morning.
"I think what we are seeing is just a market flowing out of the dollar and trimming long positioning that was built yesterday," said Monex's Harvey.
According to Stuart Cole, chief macro economist at Equiti Capital, the market has taken comfort that the banking crisis will not spread, while positive earnings from some major U.S. tech companies have helped allay concerns that the US economy is in trouble.
"The culmination of all this has been some easing in demand for safe haven assets such as the dollar, allowing the likes of sterling to benefit," said Cole.
"But I think it is a misleading picture and the market is choosing to look at the current earnings numbers while choosing to ignore the increasing signs that U.S. economic activity does appear to be slowing," said Cole.
The pound is not far off 10-month highs at $1.2540 that it touched on April 14. Meanwhile, against the euro the pound was 0.15% lower at 88.56 pence on Wednesday .
"The euro and the pound have continued to move in tandem with no clear drivers justifying a divergence between these two currencies at the moment since most of the news are coming from the US and the dollar side," said ING FX strategist Francesco Pesole.
Traders are predicting a 92% chance of a 25 bps hike from the Bank of England (BoE) at its next meeting set for May 11th. The BoE has hiked rates eleven times since the beginning of this rate hiking cycle in December 2021, as it battles to bring down double-digit inflation.
