The British pound held near a three-month high against a softening U.S. dollar on Wednesday, trading just below $1.35335—its strongest level since mid-September—while also hovering near a two-month peak against the euro. With holiday-thinned volumes exaggerating moves, sterling’s resilience largely reflected expectations that the Bank of England will slow its rate-cutting trajectory relative to the Federal Reserve.

The pound’s strength follows last week’s BoE decision, where policymakers narrowly voted to cut rates but signaled a cautious, gradual path ahead. This contrasts with market bets that the Fed will continue easing more aggressively in 2026, supporting sterling’s relative appeal in the near term.

Holiday Liquidity Amplifies Moves

Trading was subdued ahead of the Christmas break, with many participants already away. The euro briefly touched 87.21 pence, its weakest since mid-October, before stabilizing. The dollar also softened broadly against European currencies, reflecting year-end positioning and shifting expectations for monetary policy divergence.

The BoE’s communicated caution suggests that while U.K. rates may continue to decline, the pace will be measured—a stance that could underpin sterling if global growth concerns prompt other central banks to act more decisively. For now, the pound’s trajectory remains tied to relative policy paths and seasonal liquidity conditions, with fuller market participation expected to return in the new year.