The British pound has climbed to a notable 29-month peak against the US dollar, driven by anticipation of a substantial interest rate reduction in the United States next month.

On Tuesday, sterling appreciated by 0.25 percent, reaching $1.323, marking its highest value since March 2022. This surge follows remarks from Jerome Powell, the chairman of the Federal Reserve, who indicated that the “time has come” for monetary easing in the US economy.

In contrast, Andrew Bailey, the governor of the Bank of England, did not signal any immediate need for additional rate cuts during his address at the annual Jackson Hole symposium.

Market participants have significantly increased their bets on the Fed implementing a 50 basis-point cut to interest rates next month, which would represent the first easing of monetary policy since the onset of the pandemic. Lower interest rates generally exert downward pressure on exchange rates.

This month, the dollar has weakened against all major currencies, with a measure of the trade-weighted dollar declining to its lowest point since July 2023. Recent economic data indicates a softening labor market in the US, highlighted by rising unemployment rates and slowing job growth.

Ehsan Khoman, a currency strategist at MUFG, a Japanese financial institution, noted, “The foreign exchange markets appear to be positioning themselves to short the dollar. The Fed may adjust real rates more swiftly than other central banks.”

This year, the pound has emerged as one of the top-performing major currencies, gaining 3.8 percent against the dollar since January and 5 percent over the past year.

On Tuesday, sterling also rose by 0.2 percent against the euro, reaching €1.183, its highest level in a month.

Investors are predicting only one or two additional rate cuts in the UK before the year ends, in contrast to expectations for three cuts in both the eurozone and the US. This divergence in monetary policy is likely to support the value of the pound.