Sterling climbs above $1.26 for first time in a year

Sterling rose in European trade on Friday for the third straight session against dollar, trading above $1.26 for the first time in a year due to the strength of the UK banking system compared to Europe and the US.

Dollar declined as well as the US banking crisis deepens, which might push the economy to recession faster than expected, with traders already pricing in potential rate cuts later this year. 

GBP/USD rose over 0.5% to 1.2634, the highest since May 2022, after rising 0.1% yesterday, the second profit in a row on strong sentiment in the UK.

Sterling, the Best Performing Major Currency in 2023

Sterling is the best performing major G8 currency in 2023 due to strong UK data and the strength of the banking sector.

The pound's strength could be clearly linked to the strength of UK banks, which resisted recent headwinds that hurt the banking sector in Europe and the US.

Bank of England Governor Andrew Bailey said he doesn't see a threat to financial stability in the UK as British Banks remain highly flexible with strong capital.

The pound was also boosted by higher UK interest rates with more upcoming rate hikes.

Dollar

The dollar index fell 0.3% on Friday, resuming losses, and almost hitting 13-month lows against a basket of major rivals. 

The dollar is hurt amid ongoing risks surrounding the US banking sector, in turn threatening to send US economy into recession.

US regional banks, including PacWest, First Horizon, and Western Alliance were exposed to extensive losses this week, with Western Alliance looking to sell assets to exit the current financial crisis.