Sterling strengthened on Wednesday, rising against both the euro and the U.S. dollar as investors reacted to shifting interest rate expectations and signs of a more resilient UK economy.
The pound gained after two days of losses versus the euro, supported by improving UK growth projections. The OECD’s latest outlook suggested Britain is performing better than anticipated, increasing the likelihood that the Bank of England may slow its rate-cutting plans — a move that typically boosts the currency, News.Az reports, citing Reuters.
The euro, which firmed earlier in the week, slipped 0.20% to 87.80 pence. Last Thursday, it had touched 87.46 pence, its lowest level since late October. Markets currently expect the European Central Bank to hold rates steady well into 2027, while pricing in around 60 basis points of Bank of England cuts by the end of 2026.
Sterling also reached a five-week high against the dollar at $1.3289 as the U.S. currency weakened amid expectations of a more accommodative Federal Reserve in the months ahead.
Analysts noted that the UK budget did not introduce immediate fiscal tightening, reducing pressure on the Bank of England to accelerate future rate cuts. Chancellor Rachel Reeves’ mix of tax measures — aimed at lowering the budget deficit more than expected — also strengthened market confidence.
Political criticism surrounding Reeves’ pre-budget remarks had little impact on the pound. Britain’s fiscal watchdog clarified that her comments were not misleading, helping maintain stability in market sentiment.
