In relation to the euro, the pound reached its highest level in over two and a half years, Daily Dazzling Dawn understand.

The spike in sterling occurred as the European Central Bank (ECB) readied itself to lower interest rates in an effort to support the faltering economy.In contrast, it is anticipated that the Bank of England will maintain its current rate structure next week. Since lower interest rates tend to devalue a currency, the possibility of a rate drop in the eurozone—but not in the UK—has caused the euro to decline in value relative to the pound.

Traders expect the BOE to stay on hold in its last policy meeting of the year next week, and remain cautious about lowering rates further. UK growth remains robust and inflation is still elevated in some sectors. The ECB, meanwhile, is widely seen cutting borrowing costs by a quarter point on Thursday to support the bloc’s economy.

“The big 0.8200 level is looming large,” said Brad Bechtel, global head of FX at Jefferies, referring to the next big technical level for the euro-pound cross. “It is pretty clear the BOE will remain well behind” the ECB in the pace and extent of interest-rate cuts, he added.

The interest-rate differential between the UK and the euro area is expected to widen further next year. Swaps imply 80 basis points of easing from the BOE in 2025 and about 125 basis points from the ECB.The euro has also been dragged lower by the risk of US trade tariffs hitting the region’s goods exports. Political turmoil in the bloc’s two biggest economies are also clouding the outlook for growth.

“Monetary policy trend between the ECB and BOE favors a lower euro-pound,” said Elias Haddad, senior markets strategist at Brown Brothers Harriman. “Political paralysis in France and Germany means the ECB will have to do the heavy lifting to support the euro zone economy.”