Sterling's Steady Ascent Amid Holiday Trading

The British pound reached its peak against the euro in two months and remained stable against the dollar amidst thin holiday trading. Despite a minor rise against the euro, Sterling's trajectory remains largely influenced by Bank of England decisions and market expectations of future interest rate cuts.

The British pound has reached its strongest level against the euro in two months while holding steady relative to the dollar during Tuesday's subdued holiday trading. Despite limited news affecting currency movements, Sterling maintained its position at $1.3518 against the dollar, nearly reaching last week's peak.

Sterling showed slightly more movement against the euro, achieving a level of 87.03 pence, the highest since mid-October. This minor increase of just over 0.1% occurred amid thin trading activity during the Christmas period in the UK. The currency's performance remains largely influenced by the recent Bank of England meeting decisions.

In December, the Bank of England cut interest rates by a narrow vote, hinting that the pace of lowering borrowing costs might decelerate. Such a move could continue to support the pound against other currencies, especially if the U.S. Federal Reserve pursues further easing next year. However, Goldman Sachs analysts anticipate further declines in British headline inflation due to a weakening labor market, forecasting potential policy rate cuts in 2026.

(With inputs from agencies.)