Published by Global Banking & Finance Review®
Posted on November 28, 2025
2 min readLast updated: January 20, 2026
Add as preferred source on GoogleSterling is set for its best week in over three months due to UK budget relief, despite potential Bank of England rate cuts. The currency rose 0.85% this week.
By Ozan Ergenay
LONDON (Reuters) -Sterling was heading for its best weekly performance in over three months on Friday, in a sign of relief among investors after British finance minister Rachel Reeves revealed her long-awaited budget earlier this week.
Reeves fought back on Thursday against criticism of the government's spending plans, which will fund extra welfare spending by raising the country's tax burden to a post-World War Two high. The government said it planned to raise taxes by 26 billion pounds ($34 billion).
Britain's currency was last down 0.2% at $1.3202. But it was up around 0.85% for the week so far, on track for its biggest weekly gain since early August.
"Sterling's post-budget rise has the hallmarks of a relief rally rather than the start of a sustained trend," George Vessey, lead FX and macro strategist at Convera, said in a note to clients.
"Sterling/dollar pushed above $1.32 as investors broadly welcomed the budget's signal of a more disciplined borrowing path, but the muted overall market reaction suggested much of the fiscal package had already been discounted and sterling's gains likely also reflected the unwinding of pre-event hedges."
However, Vessey flagged that the pound's yield support is set to diminish, capping its room to rally further in the short term as further Bank of England rate cuts loom.
The BoE kept interest rates unchanged in November in a tight 5-4 vote, but markets expect the central bank will resume its rate-cutting cycle when it convenes next month.
The pound has gained 5.56% since the start of the year against a broadly weak dollar.
The euro meanwhile was steady at around 87.58 pence, down from recent peaks.
(Reporting by Ozan Ergenay in London; editing by Dhara Ranasinghe and)
Foreign currency refers to any currency that is not the domestic currency of a specific country. It is used in international trade and investment and can be exchanged for the local currency.
Interest rates are the amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal. They can influence economic activity and inflation.
Currency hedging is a financial strategy used to protect against potential losses due to fluctuations in exchange rates. It involves using financial instruments to offset the risk of adverse currency movements.
Financial markets are platforms where buyers and sellers engage in the trading of assets such as stocks, bonds, currencies, and derivatives. They play a crucial role in the economy by facilitating capital allocation.
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