Sterling rose in European trade on Wednesday against a basket of major rivals, holding above three-week lows against the dollar after a weak start to the year.
Markets are cautiously returning to higher-risk currencies and assets amid optimism about 2024.
There's a lack of data released in the UK later this week, thus the focus remains on US data, including the crucial US payrolls report.
GBP/USD
GBP/USD rose 0.2% to 1.2647, with a session-low at 1.2616, after closing down 0.9% on Tuesday, the largest loss since October 12, marking a three-week low at 1.2610.
The pound rallied 0.8% in December against the dollar, the second monthly profit in a row following Bank of England's meeting.
Investors now don't expect the Fed to cut interest rates early this year like the Federal Reserve and the European Central Bank, as inflation remains stubborn in the UK.
The pound rallied 5.25% today against the dollar in 2023, the first yearly profit in three years, and the largest since 2017.
The strong gains came as the Federal Reserve took a clearly bearish view later in the year, paving the way for policy easing in 2024 and dragging the greenback down.
Risk Aversion
The dollar recently surged to two-week highs against major rivals, boosted by higher US 10-year treasury yields.
Risk aversion spiked in the last 24 hours, boosting US treasury yields and hurting stocks amid growing geopolitical tensions in the Middle East, but the markets are expected to resume normal brisk operations this week.
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