Sterling rises to 12-week high against weaker dollar

The pound hit a near three-month high against a broadly weaker dollar on Tuesday as traders assessed a green shoot in the UK economy amid persistent inflation.

Sterling rose 0.42% against the dollar to $1.3517, its highest level since Oct. 1, extending last week’s gains and putting it on track for its best month in four.

The pound is up more than 2% so far in December and almost 8% higher through the end of 2025.

But as the Japanese currency slipped around recent lows against major peers, a stronger yen was the focal point for traders on Tuesday following a stern warning from authorities signaling Tokyo’s readiness to intervene.

That includes the pound, which is nearing its highest level against the yen since 2008. Against the euro, sterling was 0.1% higher at 87.29.

“Sterling-wise there seems to be a slight improvement in sentiment on the outlook for the economy – even if it looks a bit miserable in the trenches at the moment,” said Neil Wilson, UK investment strategist at Saxo Markets.

Data on Monday showed Britain’s economy grew by 0.1% in the July-to-September period this year, in line with the Office for National Statistics’ preliminary GDP forecast. But the ONS also said the revision to its data meant that inflows into Britain from foreign direct investment held abroad were higher than previously thought.

“Revised GDP figures have shown a significant upward revision in business investment so businesses are taking positive advantage of that,” Wilson said.

The pound has gained 1% since the Bank of England delivered a widely expected rate cut last Thursday. But policymakers also signaled that the rate for further cuts remains high, with inflation rising relative to other major economies.

Meanwhile British Finance Minister Rachel Reeves has asked the country’s budget watchdog to publish its next economic and public finance forecasts – but not an assessment of her progress on meeting its fiscal targets – on March 3, the government said, after presenting its budget last month.

“Positioning in the budget was kind of negative so that additional fiscal headroom delivered (albeit dubious) we’ve seen a bit of a relief rally since then,” Wilson said.