Sterling Pound Climbs Toward Five-Month Peak Against Euro as Market Risk Appetite Recovers

The British pound has strengthened significantly against the euro in early February, approaching levels not seen in the past five months. This rally reflects a notable shift in market sentiment, with investors displaying renewed confidence in risk assets and a generally calmer tone surrounding upcoming monetary policy decisions.

Risk Sentiment Recovery Propels Pound Higher

Market dynamics have shifted decisively in favor of the pound, as evidenced by the strong positive correlation between sterling and broader risk appetite indicators. According to analysis from Convera, a payments and financial services platform, this correlation has become a primary driver of recent pound strength. The currency successfully pierced through the key 1.1550 resistance level against the euro, signaling trader confidence and marking a technical breakout that suggests continued upward momentum. When global risk sentiment strengthens—typically during periods of economic optimism and reduced geopolitical tensions—investors rotate into higher-yielding currencies like sterling, which benefits from the Bank of England’s relatively higher interest rate environment compared to the eurozone.

Bank of England Policy Outlook Supports Sterling Stability

Market participants are widely expecting the Bank of England to maintain its current interest rate stance at its upcoming policy decision on Thursday. This stability in policy expectations has bolstered confidence in sterling assets. Notably, analysts from Convera have observed that the probability of a more accommodative policy pivot remains limited, with consensus forecasts suggesting only a low likelihood of seeing more than two policymakers voting in favor of an immediate rate cut. This hawkish-leaning outlook, even amid global economic uncertainty, provides a supportive backdrop for pound valuations against the euro, where the European Central Bank has maintained a more dovish posture. Such divergence in monetary policy expectations typically favors the higher-yielding currency.

Technical Momentum and Market Implications

The pound’s breakthrough of established resistance levels against the euro represents more than a simple technical achievement—it reflects genuine shifts in how markets are pricing in future economic and policy trajectories. The convergence of improved risk sentiment and stable Bank of England rate expectations has created an environment where sterling can extend its gains against the single currency. Traders monitoring pound-to-euro movements should pay particular attention to how this technical momentum interacts with incoming economic data from both regions, as any significant deviation from current policy expectations could shift the pound’s trajectory relative to the euro.