Sterling hits five‑month high versus euro

The euro hit its lowest since August 27 against the pound at 86.15 pence and was last down 0.09% at 86.21 pence

Sterling rose to a new five‑month high against the euro on Wednesday, though investors remained on hold ahead of the Bank of England’s policy meeting later this week.

British interest rates are likely to drop further this year, but the BoE will probably sound vague this week about when or by how much it will cut borrowing costs as it awaits a clearer picture on inflation.

The euro hit its lowest since August 27 against the pound at 86.15 pence and was last down 0.09% at 86.21 pence.

The British currency was roughly unchanged at $1.3702.

Strategists at Barclays argued in a research note that the euro/sterling now is “fairly close to rate differential-consistent levels,” after the process of fiscal risk premium unwind for is over.

Post-budget economic data have registered a notable bounce, consistent with the improved fiscal outturn for December.

The stronger pound reflects both a reduction in UK fiscal and political risks after the Budget was released, and building evidence of a pick-up in growth momentum in the UK as uncertainty has faded, said Lee Hardman, senior currency economist at MUFG.

Activity in Britain’s services sector grew strongly in January and confidence rose, a survey showed on Wednesday, but firms also reported a jump in their prices.

For the BoE, a pause by the Monetary Policy Committee at 3.75% is widely expected and the messaging is unlikely to matter much for the pound other than additional easing is to come, said Paul Mackel, global head of forex research at HSBC.

Traders priced in 35 bps of BoE rate cuts by year-end, implying one 25 bps move and a 40% chance of an additional cut. They also indicated European Central Bank policy rates stable through early 2027.