The UK economy exceeds expectations, and the pound is expected to become the best G10 currency against the US dollar this year

According to Zhitong Finance APP, on Tuesday, the British pound showed little change on the last trading day of the year, as the UK economy performed better than expected, making the pound likely to be the best-performing major currency against the US dollar this year.

Due to the largely consistent expectations for interest rates in the UK and the US, the GBP/USD exchange rate has fallen by 1.4% year-to-date. As of the time of writing, the pound was flat at $1.2538 on Tuesday, down from $1.273 at the beginning of the year. This has limited the difference in bond yields between the two countries, which drives the exchange rate by increasing or decreasing the attractiveness of fixed-income investments.

Investors generally expect that after two rate cuts in 2024, the Bank of England will cut rates twice next year. Bank of England officials remain concerned that inflation levels in the services sector and wages are still too high.

The Bank of England's Monetary Policy Committee stated earlier this month: "Progress has been made in combating inflation, especially as previous external shocks have weakened, although the remaining domestic inflation pressures are resolving more slowly."

However, the pound has fallen more than 6% in the fourth quarter, mainly due to the Federal Reserve taking a tougher stance on US inflation, leading to a rebound in the dollar, while signs of weakness have emerged in the UK economy.

The divergence among Bank of England officials when voting to keep interest rates unchanged this month was greater than expected, with three members voting in favor of a rate cut. The UK economy contracted in September and October, marking the first consecutive contraction since the COVID-19 pandemic.

The pound has performed much better against the euro, rising about 4.5% this year. The eurozone's economic slowdown has exceeded expectations, leading to a relatively significant rate cut by the European Central Bank, with investors expecting further cuts next year.

Earlier this month, the euro fell to 82.23 against the pound, the lowest level in two and a half years, not far from the levels seen after the 2016 Brexit referendum, which had caused the pound to drop. As of the time of writing, the euro was up 0.15% against the pound, at 83.04