Sterling rises versus euro, reaches fresh 15-month high against yen

By Stefano Rebaudo

Oct 8 (Reuters) - Sterling slipped against a strong dollar but rose versus the euro and the yen on Wednesday, while concerns over the British economy and next month's budget kept investors on edge.

The common currency and the yen were on track for a third straight day of losses against the dollar on Wednesday, pressured by political turmoil in France and expectations of increased fiscal spending in Japan.

On the British economic front, analysts expect modest growth for the rest of the year, while inflation is seen rising to 4% — double the Bank of England’s target — after data last week showed the economy lost momentum following a strong start to 2025.

The British currency showed a quite muted reaction to recent data, but investors feared that potential tax hikes to meet fiscal rules in next month's budget could have a negative impact on the pound.

Sterling was down 0.1% against the dollar at $1.3409.

"Sterling will be a barometer of Rachel Reeves's ability to balance the need for fiscal prudence, economic growth and honouring political pledges," said Robert Farago, head of strategic asset allocation at Hargreaves Lansdown.

"Today, the U.S. dollar is overvalued against sterling, the euro and the yen. But this is a minor ingredient in the recent weakness of the dollar, which has largely been driven by the significant shifts in U.S. policies," he added.

Against the euro the pound rose 0.20% to 86.61 pence per euro, its highest level since September 16.

It hit a fresh 15-month high versus the yen at 204.97, and was last up 0.50% at 204.85.

BoE officials Huw Pill and Catherine Mann are speaking this week, with Pill due later on Wednesday and Mann on Thursday. Both backed the decision to hold rates at the September meeting.

Global financial markets could tumble if investors' mood sours on the prospects for artificial intelligence or the independence of the U.S. Federal Reserve, the BoE warned on Wednesday.