Finance
Sterling Rises Against the Euro, Hits 5-week High vs Dollar
Published by Global Banking & Finance Review®
Posted on December 3, 2025
2 min readLast updated: January 20, 2026
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Sterling rose against the euro and hit a 5-week high vs the dollar, driven by UK's economic growth and diverging rate outlooks.
Sterling Gains on Euro, Reaches 5-Week High vs Dollar
By Stefano Rebaudo
Dec 3 (Reuters) - Sterling rose against the euro after two straight declines on Wednesday as investors weighed diverging rate outlooks with the single currency bloc against expectations of a stronger UK economy.
The pound also hit a 5-week high versus a weakening dollar as markets remained focused on the Federal Reserve easing path.
With Britain's growth outpacing earlier forecasts, as the OECD said on Tuesday, the Bank of England could slow its monetary easing path, a move that would support the pound.
The single currency had firmed earlier this week as markets strengthened their view that the European Central Bank will stay on hold through 2027, while the Bank of England is expected to cut rates next year.
Traders priced in only about a 30% chance of an ECB rate cut in 2026 and see the deposit rate at 1.95% by December 2026, down from the current 2%, while the Bank of England is expected to deliver around 60 basis points of cuts by the end of 2026.
The euro dropped 0.20% against the pound to 87.80 pence on Wednesday. It hit 87.46 last Thursday, its lowest level since October 28.
"Chancellor Rachel Reeves was able to pull together a smorgasbord of tax increases that collectively are projected to reduce the budget deficit by a wider margin than expected," said Kristina Hooper, chief market strategist at Man Group.
"In other words, she was able to achieve the fiscal credibility that was needed."
Sterling hit a 5-week high against the dollar at $1.3289, and was last up 0.54% at $1.3286.
Analysts argued that the lack of immediate fiscal tightening after the budget does not provide additional impetus for the BoE to cut rates more in the coming years.
Traders also flagged the pound was unaffected by political opponents' accusations that Finance Minister Reeves misled the public ahead of the budget, which she denied.
However, an official from Britain's fiscal watchdog said on Tuesday that her pre-budget speech was not misleading.
(Reporting by Stefano Rebaudo; Editing by Shailesh Kuber)
Key Takeaways
- •Sterling rose against the euro after two declines.
- •Pound hit a 5-week high against the dollar.
- •UK economy outpaces earlier forecasts.
- •Bank of England may slow monetary easing.
- •ECB expected to hold rates through 2027.
Frequently Asked Questions about Sterling rises against the euro, hits 5-week high vs dollar
1What is foreign exchange?
Foreign exchange, or forex, is the global marketplace for trading national currencies against one another. It is the largest financial market in the world, facilitating currency conversion for international trade.
2What are interest rates?
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are set by central banks and influence economic activity and inflation.
3What is the UK economy?
The UK economy refers to the economic system of the United Kingdom, characterized by a mix of private and public enterprise, and is one of the largest economies in the world.
4What are financial markets?
Financial markets are platforms where buyers and sellers engage in the trade of assets such as stocks, bonds, currencies, and derivatives. They play a crucial role in the economy by facilitating capital flow.
5What is currency?
Currency is a system of money in common use, particularly for people in a nation. It serves as a medium of exchange, a unit of account, and a store of value.
