Published by Global Banking and Finance Review
Posted on January 7, 2026
By Stefano Rebaudo
Jan 7 (Reuters) - Sterling held near its highest level in over three months against the euro and dollar on Wednesday, as steadying risk appetite left European stocks little changed following a three-day rally that pushed them to record highs.
The pound often correlates positively with global equity markets and other risk-sensitive assets, as the UK economy is open and heavily reliant on global trade and financial flows.
However, this relationship can weaken during UK-specific developments.
Some analysts recently flagged that the British currency had now recovered all the losses incurred in the run-up to last year's budget, benefiting from the reduction in UK fiscal and political risks.
The pound was flat at $1.3500 against the dollar, after hitting $1.3567 on Tuesday, its highest level since September 18.
The greenback was roughly unchanged on Wednesday as investors awaited key U.S. economic data later in the session.
"Barring any surprises here, we think that the pound/dollar pair could trade around the 1.35 level for now, as markets weigh up the possibility of another Bank of England rate cut as soon as its March meeting," said Matthew Ryan, head of market strategy at Ebury, mentioning the next economic data as a possible trigger.
"Sterling has caught a bid against the dollar as markets unwind modest safe-haven flows amid a remarkably sanguine reaction to the Maduro ousting over the weekend," he added.
Markets fully priced in a BoE rate cut and a 60% chance of an additional easing move by year-end.
Traders expect the European Central Bank to keep rates unchanged through early 2027.
The euro was flat at 86.60 pence. It hit 86.44 pence on Tuesday, its lowest since mid-September.
"(Sterling recent outperformance suggests) speculators are continuing to exit the short positions built in the approach to the UK's November budget," said Jane Foley, senior forex strategist at Rabobank.
"This may have a little further to run near-term, though the release of monthly UK November GDP data on January 15 should provide fresh direction," she added.
(Reporting by Stefano Rebaudo; Editing by Joe Bavier)
Foreign exchange refers to the global marketplace where currencies are traded. It involves the conversion of one currency into another and is essential for international trade and investment.
The UK economy is the economic system of the United Kingdom, characterized by a mixed economy that includes various sectors such as services, manufacturing, and agriculture.
Economic data includes statistics that reflect the economic performance of a country, such as GDP, unemployment rates, inflation rates, and trade balances. This data is crucial for analyzing economic trends.
A currency pair is a quotation of two different currencies, with one currency being quoted against the other. For example, in the GBP/USD pair, the British pound is quoted against the US dollar.
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