The British pound climbed to its highest level in nearly three months against the US dollar on Tuesday, supported by signs of resilience in the UK economy and a broad weak of the greenback. Sterling rose 0.42% to $1.3517, its strongest level since October 1, extending gains from last week.
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The currency is now up more than 2% in December and is on track to end 2025 around 8% higher overall. Analysts said sentiment toward the pound has improved modestly as traders reassess Britain’s growth outlook, even as inflation remains elevated compared with other major economies.
Fresh data from the Office for National Statistics showed the UK economy grew by 0.1% in the July-to-September quarter, confirming earlier estimates. Revisions also indicated higher income flows from foreign direct investment, while business investment was revised sharply upward, helping to bolster confidence among investors.
Sterling rises to 12-week high versus weaker dollar https://t.co/EWCFwJLqnq pic.twitter.com/LC43QAVQh7
— Reuters UK (@ReutersUK) December 23, 2025
Sterling has gained about 1% since the Bank of England delivered a widely expected interest rate cut last week. However, policymakers signalled caution on further easing, stressing that inflation pressures remain persistent and that the bar for additional rate cuts is high.
Against the euro, the pound edged up 0.1% to 87.29 pence, while it hovered near multi-decade highs versus the Japanese yen. The yen strengthened more broadly after Japanese authorities issued their strongest warning yet about potential market intervention, becoming a key focus for currency traders.
UK Finance Minister Rachel Reeves has also asked the country’s budget watchdog to publish updated economic and public finance forecasts in early March, following her recent budget. Analysts noted that relief over perceived fiscal headroom has contributed to a modest rally in sterling since the budget announcement.
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Despite the recent gains, analysts cautioned that the pound’s outlook will remain sensitive to inflation data, central bank policy signals, and global currency moves in the weeks ahead.