Sterling rose as high as US$1.2489 and was last up 0.37% at US$1.247.

It dipped to US$1.2353 last week, its lowest since April, as the dollar rallied on the back of expectations for strong US growth and a rise in tariffs in 2025.

There was little obvious catalyst for the rally in the pound, although the dollar fell against a range of currencies including the euro, Swiss franc and Canadian dollar.

“It’s a quiet start of January for the UK until British Retail Consortium sales (data) tomorrow and the Recruitment & Employment Confederation report on jobs along with the Bank of England’s (BoE) Decision Maker Panel survey, both on Thursday,” said Jordan Rochester, a currency strategist at Japanese bank Mizuho.

The dollar rallied in late December and early January against a range of currencies, pushing the pound down to its lowest level in months.

The US is expected to grow considerably faster than other economies including the UK next year, while President-elect Donald Trump’s tariff policies could be inflationary, reducing the scope for Federal Reserve (Fed) cuts and supporting the dollar.

Sterling was flat against the euro today, with one euro trading at 82.96 pence.

Traders today were pricing in around 55 basis points (bps) of interest rate cuts from the BoE this year, about 5 bps fewer than late last week.

The BoE lowered rates by 50 bps to 4.75% in 2024.

Survey data today showed growth in British business activity slowed to a crawl in December and employers cut staffing at the fastest rate in almost four years amid a continuing slump in corporate morale after the government’s budget.