Sterling rises to 12-week high versus weaker dollar

The pound rose to a near three-month high against a broadly weaker dollar on Tuesday, as traders assessed green shoots in the UK economy while keeping a close eye on persistent inflation.

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

The pound is up over 2% so far in December and on track to end 2025 about 8% higher.

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

That includes the pound, which is hovering close to its highest level versus the yen since 2008 . Against the euro, sterling was 0.1% higher at 87.29 .

“Sterling-wise looks to be some improving sentiment towards the outlook for the economy even if it looks a bit miserable in the trenches right now,” said Neil Wilson, UK investor strategist at Saxo Markets.

Data on Monday showed Britain’s economy grew by 0.1% in the July-to-September period of this year, in line with the initial GDP estimate by the Office for National Statistics. But the ONS also said revisions to its data meant income flowing into Britain from foreign direct investment held abroad had been higher than previously thought.

“Revised GDP figures showed a substantial upwards revision to business investment so traders are taking the positive out of that one,” said Wilson.

The pound has added 1% since the Bank of England delivered a widely expected rate cut last Thursday. But policymakers also hinted that the bar for further cuts remains high, with inflation elevated compared 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 her fiscal targets – on March 3, the government said, after delivering her budget last month.

“Positioning was kind of negative going into the Budget so as that delivered (albeit dubious) extra fiscal headroom we have seen some relief rally since,” said Wilson.