Pound Sterling Holds Firm Near the Highs
- Written by: Gary Howes
Image © Adobe Images
The British pound consolidates near key technical objectives, maintains year-end uptrend.
Gains for sterling through year-end coincide with positive investor sentiment in global financial markets, which are typically supportive of the UK currency.
With little by way of data or events to trouble traders, the benign market backdrop can remain in place to offer continued support to pound sterling.
"We do not expect meaningful shifts in sentiment between Christmas and New Year’s, and most rebalancing-related flows and price moves appear to have already occurred," says Geoff Yu, EMEA Macro Strategist at Bank of New York Mellon.
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With stocks ending the year on a high, those currency pairs that do well when investors are confident are set to stay well supported.
"Stock markets in both the U.S. and Europe are well on track to end the year at record highs after the S&P500 climbed 0.75% over Christmas and European stock market futures indicate a positive opening today," says Gustav Helgesson, an analyst at SEB Research.
The pound-to-euro exchange rate (GBP/EUR) rose to a two-month high of 1.1482 on December 25, before paring the advance to 1.1465 at the time of writing Monday.
Above: GBP/EUR at daily intervals.
GBP/EUR had fallen steadily throughout 2025 as investors worried about the UK's economic trajectory, with data showing a material slowdown into the much-hyped November 26 budget.
But with the budget behind us, anxieties have lifted with economic surveys indicating a revival in business confidence. This, combined with the stock market rally, has helped the GBP recover from its November lows.
The pound to dollar exchange rate (GBP/USD) rose to a high of 1.3533 last week, a four-month high, and has since consolidated those gains, easing back to 1.3488.
Above: GBP/USD at daily intervals.
As with GBP/EUR, the path of least resistance for GBP/USD is higher, particularly as the big dollar softens.
"USD has room to fall as long as broader risk-on sentiment stays intact," says Christopher Wong, FX Strategist at OCBC.
The consensus expects the U.S. dollar to remain under pressure in 2026 as the U.S. economy continues to cool and the Federal Reserve responds by lowering interest rates.
"For 2026, we continue to expect USD to trade moderately softer as Fed easing erodes carry advantage while US exceptionalism fades," says Wong.
