The British pound was the best-performing major currency last year, until August 2023 when it became clear that inflation would slow and remove the need for the Bank of England to raise interest rates as high as 6.5%, which money markets were implying at the time.

The slowdown in UK inflation did indeed happen, and expectations for Bank of England rate cuts in 2024 grew just before the Christmas holidays after CPI inflation was reported at just 3.9% year-on-year in November, down from 4.6% in October, and far lower than the 4.3% anticipated by the market.

Since then, sterling has been the second-worst performer in the G10 when screened over the past month. Despite this, the UK currency remained the second-best performer in the G10 for 2023 overall.

For currencies, 2024 will be all about the timing and scale of central bank rate cuts; should the Bank of England cut before its major peers, the pound will struggle. If it cuts later, the pound could appreciate in value again, according to a new report by Pound Sterling Live.

The report states that NatWest expects the British pound to steadily advance against the Euro and Dollar until about the third quarter of 2024 before paring gains towards the end of the year as the Bank of England eventually slashes interest rates. NatWest’s economists expect the UK to have one of the highest nominal policy rates in the G10 for much of this year.