Why did sterling hit a four-month high on January 6, 2026?

Sterling's rise was fueled by positive global investor sentiment, reduced concerns about the UK's fiscal health, and signals of a potential closer relationship with Europe.

What is a 'carry trade' and how does it affect the pound?

A carry trade involves borrowing in low-yielding currencies to invest in higher-yielding ones. Low currency volatility and higher UK interest rates made such trades attractive, benefiting the pound.

Did Prime Minister Keir Starmer comment on the UK's relationship with Europe?

Yes, Prime Minister Keir Starmer indicated on Sunday that Britain should seek closer alignment with the European single market on an issue-by-issue basis when it serves national interest.

Home / Business and Economy / Sterling Soars: UK Pound Hits 4-Month Highs

Sterling Soars: UK Pound Hits 4-Month Highs

6 Jan

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Summary

Pound reached its highest point against the dollar since mid-September.
Sterling also strengthened, hitting four-month lows against the euro.
Improved global investor sentiment and reduced UK fiscal risks boosted sterling.

Sterling Soars: UK Pound Hits 4-Month Highs

The British pound achieved its strongest position in nearly four months against both the US dollar and the euro on Tuesday. This significant rise against the dollar marked its highest point since mid-September. Concurrently, the euro experienced a notable decline, falling to its lowest level against sterling in almost four months.

Analysts attributed sterling's upward momentum to a combination of factors, including a generally positive global investor sentiment, which has seen world stocks reach record highs. The pound has now recovered all losses from the period preceding the most recent budget, indicating a perceived reduction in near-term UK fiscal and political risks. Furthermore, higher interest rates in the UK compared to many other countries make it an attractive destination for carry trades.

Adding to the supportive environment were recent statements from UK government officials, including Prime Minister Keir Starmer, suggesting a desire for closer alignment with the European single market on specific issues. While data indicated a weaker-than-expected end to 2025 for the UK's dominant services sector, this had minimal impact on the currency's performance.