Sterling holds out against strong dollar

By Greta Rosen Fondahn

(Reuters) - The pound stood its ground in thinned-out holiday trading session on Monday and looked set to end the year as the best performing major currency against the relentlessly firming dollar.

Sterling was up 0.1% against the greenback at $1.2595.

The pound has fallen 1% versus the greenback since the Federal Reserve's Dec. 18 policy meeting, but has clawed back close to 0.5% since last Monday.

Trading has been thin over the past holiday-limited week, and is expected to remain subdued as the end of the year quickly approaches.

But sterling is still the G10 currency that has held up the best against the dollar this year, with expectations of a slow rate-cut path from the Bank of England underpinning much of the currency's strength in 2024.

The BoE is in part an outlier because of sticky British inflation, and Goldman Sachs entitled its regular inflation monitor published late Sunday: "Progress (towards controlling inflation) resumes outside of the UK".

British inflation hit an eight-month high in November, though the rise in services prices - watched closely by the Bank of England as an underlying measure of inflationary pressures - held steady, offering the central bank a little bit of relief.

But traders are wondering how long the BoE can remain an outlier amid a slowing British economy.

British Prime Minister Keir Starmer has asked regulators, including the financial and competition watchdogs, to remove barriers to growth in an effort to revive a sluggish economy, Sky News reported on Saturday.

"While sterling has been the best performing currency against the dollar in 2024, a repeat of this major outperformance seems unlikely in the coming year," said J.P.Morgan in its outlook for 2025 published earlier in December.

The euro was flat against the pound on the day at 82.89 pence. The pound has gained more than 4% over the single currency this year.

(Reporting by Greta Rosen Fondahn; Editing by Angus MacSwan)