The pound hit its highest level against the dollar in nearly five months amid gathering hopes that the UK will avoid a recession.
Sterling climbed to $1.2827, its strongest since August 1, before giving up the gains later in the session.
It comes as analysts see further gains for sterling against the dollar next year, with experts at US investment bank Goldman Sachs predicting it could hit $1.35.
That would be a far cry from the aftermath of last year’s mini-Budget when sterling hit a record low of less than $1.04.
The pound is being buoyed versus the greenback on bets that the US Federal Reserve looks closer to pulling the trigger on interest rate cuts next year.
On the charge: The pound is being buoyed versus the greenback on bets that the US Federal Reserve will pull the trigger on interest rate cuts next year
Markets are also looking ahead to next year’s Budget after Chancellor Jeremy Hunt announced it would take place on March 6.
And a survey of 52 economists by Bloomberg suggested that the UK was heading for a so-called ‘soft landing’ in which inflation is brought down without causing a downturn.
They predicted that after a bumpy start to next year, GDP would grow by 0.3 per cent as consumers enjoy lower inflation, bringing an end to the cost of living crisis.
But the Bank of England predicts that growth will flatline in 2024.
The report was not entirely positive, with a third forecasting that the economy will have shrunk in the fourth quarter of this year.
That would imply a recession – defined as two quarters in a row of contraction – as GDP has already shrunk by 0.1 per cent in the third quarter.
Dan Hanson, at Bloomberg Economics, said the economy will ‘tread a fine line between stagnation and contraction in the first half’ of 2024.
