Finance
Sterling hits 17-year high against yen as traders overlook rate divergence
Published by Global Banking and Finance Review
Posted on December 19, 2025
3 min readLast updated: January 20, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 19, 2025
3 min readLast updated: January 20, 2026
Sterling hits a 17-year high against the yen as traders focus on rate divergence, despite the Bank of England's expected rate cut.
By Amanda Cooper
LONDON, Dec 19 (Reuters) - The pound held steady against the euro and the dollar on Friday, after the Bank of England delivered an expected rate cut, while hitting its highest since 2008 against the yen, hit by profit-taking following a well-telegraphed Bank of Japan rate increase.
Sterling was mostly flat against the dollar at $1.3378, while the euro was marginally lower at 87.55 pence. However, the pound jumped almost 0.8% on the day against the yen to a high of 209.75, its highest since August 2008, as traders took profit on the positions they had laid on in the run-up to the BOJ's decision to lift rates.
With the two central banks going the opposite ways, the gap between their interest rates is now at its narrowest in four years, which would usually boost the yen at the expense of the pound. But now, traders are more concerned about Japan's longer-term finances than what the Japanese currency is yielding at the moment.
The BoE, meanwhile, cut rates by a quarter point, as expected, on Thursday but the narrow vote suggested not all policymakers were convinced much more easing was needed, given that inflation - the highest among the Group of Seven richest economies - remains high. Governor Andrew Bailey said the overall direction for rates was lower, but possibly at a slower rate.
The pound, which has risen 1% this month so far, rose as much as 0.7% on the day after the BoE decision, only to then end Thursday's session with just a 0.1% gain.
ING strategist Chris Turner said the pound has drawn some initial support from the BoE, which proved not to lean so much in favour of more rate cuts as some had expected, with policymakers flagging wage growth and overall inflation as remaining stubbornly high. But he said sterling strength may not last long and "bears need patience."
"We suspect that these wage expectations will come down in the New Year in line with lower headline inflation. In all, we continue to expect 25-basis-point rate cuts in February and April, compared to market pricing of just one cut. And that should mean euro/sterling continues to find support ahead of 0.87," he said.
Markets on Friday showed traders expect at least one more rate cut by June at the latest, with a roughly 50/50 chance of a second by the end of next year, which would take the base rate down to 3.25%, its lowest since late 2022.
(Reporting by Amanda Cooper; Editing by Tomasz Janowski)
Foreign currency refers to the money that is used in a country other than one's own. It is often traded in foreign exchange markets and can affect international trade and investment.
Interest rates are the costs of borrowing money or the returns on savings, expressed as a percentage of the principal amount. They are influenced by central banks and economic conditions.
The UK economy encompasses the economic activities and financial systems of the United Kingdom, including production, consumption, and trade of goods and services.
Financial markets are platforms where buyers and sellers engage in the trade of assets such as stocks, bonds, currencies, and derivatives, facilitating capital flow and investment.
Central banks are national institutions that manage a country's currency, money supply, and interest rates. They play a crucial role in maintaining economic stability.
Explore more articles in the Finance category
