Sterling slipped slightly against the Euro on Tuesday after reaching a near 16-month high the previous day, buoyed by easing concerns over the UK’s public finances and rising expectations of Bank of England interest rate hikes.

The Pound strengthened against a weakening US Dollar as oil prices fell and investors anticipated relatively subdued geopolitical tensions ahead of the US midterm elections.

Sterling gained 0.19% to $1.334 against the Dollar but edged down 0.05% against the Euro to 84.48 pence, following Monday’s peak of 84.45 pence, its strongest level since June 2025, Reuters news agency reports.

Risks specific to the Euro are expected to persist, while the Bank of England has signalled that it is prepared to raise interest rates.

Markets are pricing in 100 basis points of BoE rate hikes by July 2027, although expectations for the timing and scale of potential increases remain uncertain.

The International Monetary Fund’s upward revision to its UK economic growth forecast for this year suggests that interest rates may not be as restrictive as previously thought, Bank of England policymaker Megan Greene said on Tuesday.

The 28 October budget poses a potential risk to Sterling, as investors have so far shown limited concern about the UK’s fiscal outlook. BoE Governor Andrew Bailey recently warned that governments must step up efforts to restore confidence in their public finances.

Analysts noted that Prime Minister Andy Burnham said on Monday he would push for an agreement to strengthen trade ties with the European Union at next month’s summit, a development viewed as supportive of Sterling.

Rabobank reported that net short positions on the Pound increased for a third consecutive week, reaching their highest level since June, reflecting investor concerns over the UK budget.

Meanwhile, net short positions on the Euro climbed further to their highest level since February 2020, with the single currency emerging as the worst-performing G10 currency so far this month.