By Joice Alves
LONDON (Reuters) -Sterling surged on Tuesday, breaking above $1.25 for the first time since June 2022, as traders turned bullish on a currency trading well below 2016 levels and the central bank's chief economist left the door open to more interest rate hikes.
The pound surged 0.9% to $1.2525, its highest level in ten months against a weakening U.S. dollar.
Supporting sterling, Bank of England (BoE) Chief Economist Huw Pill said Britain's central bank still cannot be sure that it has raised interest rates enough to tame inflation.
Pill voted with the majority on the BoE's Monetary Policy Committee last month to raise the bank's main interest rate to 4.25% from 4%, its 11th increase since it began increasing rates in December 2021.
Early in the day, BoE monetary policymaker Silvana Tenreyro said the central bank would probably need to start cutting interest rates sooner than previously thought, but that didn't stop the sterling rally.
After falling 10.6% in 2022, sterling is the best performing G10 currency this year, up 3.4%, despite a bleak economic outlook for Britain. But it is still 15.5% below its 2016 levels, before Britain voted to leave the European Union.
"A major bull move in the pound is developing here," said Shaun Osborne, chief currency strategist at Scotiabank.
He added that technicals point to "solid-looking bull trend signals on the short, medium and long-term".
Sterling has become the biggest beneficiary of markets repricing rates this year, with the U.S. currency continuing to be hurt by traders' expectations that the end of the U.S. rate-hiking cycle is near. [FRX/]
According to Refinitiv, money markets currently expect the BoE to raise rates by another 25 basis points in May to 4.50%, before it stops tightening monetary policy.
Against the euro, sterling rose 0.14% to 87.66 pence, after touching its highest against the single currency since March 20.