Sterling rises as Sunak becomes Prime Minister

Sterling rallied on Tuesday on increased risk sentiment with Rishi Sunak becoming UK prime minister, while the dollar fell to a three-week low as weaker US economic data dampened expectations for the pace of future US rate hikes.

The potential for currency market volatility is high this week as the euro zone and Canadian central banks are expected to raise interest rates by 75 basis points and the Bank of Japan prepares to maintain ultra-low interest rates to support its fragile economy. Rishi Sunak became Britain's third prime minister in two months on Tuesday, tasked with tackling a mounting economic crisis and a warring political party. Sterling rose to its strongest level since September 15, up 1.74% to $1.1471, but currency strategists expect sterling to remain under pressure. "Beyond a brief honeymoon period rally, I think the tough road ahead for the UK economy will limit sterling gains," said Joe Manimbo, senior market analyst at Convera. The US dollar weakened broadly amid signs that rate hikes by the Federal Reserve are slowing the world's largest economy. The greenback slipped into negative territory after data showed US home prices fell in August as rising mortgage rates dampened demand. read more "Weak housing data reinforces the view that the Fed may adopt a slower pace of rate hikes after November, which has made the dollar somewhat vulnerable in the short term," Manimbo said. The dollar index, which measures the greenback against its six major peers, was down 0.99% at 110.88 at 16:01 GMT. The euro rose to a 20-day high as the ECB appeared poised to raise interest rates by 75 basis points on Thursday as it tries to rein in rising inflation. read more The common currency was up 0.91% at 0.9965. "Even if Germany's IFO data is deep in recession territory, the warm weather is fueling (relative) optimism over the energy crisis," said Kit Juckes, chief currency strategist at Societe General. The Ifo Institute for Economic Research said Germany had entered recession, forecasting that Europe's largest economy would contract by 0.6% in the fourth quarter. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!