Sterling hovered near recent multi-month highs on Wednesday, maintaining its footing against a broadly weaker U.S. dollar as traders remained mindful of the Bank of England’s cautious policy

stance and holiday-thinned market conditions.

The pound was little changed on the day, trading just below $1.3530 after briefly touching $1.35335 in early European hours—its strongest level since mid-September. Against the euro, sterling also stayed close to a two-month high, underlining its relative resilience even as activity slowed ahead of the Christmas break.

Market participants said subdued liquidity was exaggerating price movements, with many investors already stepping away for the holiday period. Still, the pound’s ability to hold near recent peaks reflected ongoing pressure on the dollar and lingering expectations that U.S. interest rates may face downward adjustments sooner than those in the United Kingdom.

An illustration photo taken on June 22, 2017 shows British pound sterling and U.S. dollar banknotes side by side, a familiar pairing for currency markets that have recently favored the UK unit. The softer tone in the dollar has provided support for sterling in recent sessions, allowing it to edge higher despite the absence of strong domestic catalysts.

However, gains in the pound have remained measured. Analysts noted that caution from the Bank of England continues to temper enthusiasm, with policymakers signaling a careful approach amid mixed economic signals. While inflation pressures have eased compared with earlier periods, the central bank has stopped short of offering clear guidance on the timing or pace of any potential policy easing.

As a result, traders have been reluctant to push sterling significantly higher, particularly with year-end positioning and low volumes limiting conviction. Any fresh moves, market watchers said, are likely to depend on shifts in global rate expectations or clearer signals from central banks once normal trading resumes in the new year.

For now, sterling appears content to consolidate near its recent highs, supported by dollar softness but restrained by central bank caution and a quiet holiday backdrop.