Pound Holds Firm as BoE Signals Caution

The British pound was trading near a three-month high on Wednesday against a weaker U.S. dollar, as well as close to its best level in two months against the euro, on thin markets ahead of the Christmas holiday. Early in the session, sterling briefly returned to $1.35335, its highest level since mid-September, before settling slightly lower.

The depressed activity reflected lessened activity across global banking and finance markets, with many UK traders having already pulled out for the holidays. Similar patterns were observed across European currencies, with the euro softening slightly against both the dollar and the pound.

Against the euro, sterling held firm, as the common currency slipped to about 87.21 pence, its weakest level since mid-October. Analysts observed that there is still a close relationship between recent currency movements and the expectation of central bank policy, a major driving force in the banking and finance dynamics.

Last week's Bank of England meeting continues to play out in the markets. Although the vote of the BoE to slash interest rates was close, policymakers hinted that the speed of future rate cuts might decelerate, providing support for the pound. This cautious stance is contrasted by the expected mix of easing by the US Federal Reserve next year, a difference that has been keenly watched in circles at the global level of banking and finance.

Overall, the pound's endurance is a testament to the continuing strength of monetary policy signals in terms of how they affect banking and finance markets, even when there is a shortage of liquidity.