Sterling strengthened against major currencies on Monday as broad gains in global stocks and calm across all financial markets gave investors confidence to move back into the high-yielding currency.
The pound's rally was capped, however, by a flat opening on Wall Street, with US shares unable to extend the upswing on Friday triggered by the Federal Reserve's surprise decision to cut its discount lending rate by half a percentage point.
"It's been a bit of a directionless day, and I wouldn't be surprised to see that continue in the short term as everyone treads water and waits to see if things calm down," said David Jones, markets analyst at CMC Markets in London. At 1430 GMT the pound was up 0.3 percent on the day versus the dollar at $1.9855, and the euro was down 0.2 percent at 67.88 pence.
Sterling was up 0.6 percent on the day against the low-yielding yen at 228 yen. With the highest interest rates in the Group of Seven industrialised nations at 5.75 percent, sterling benefits from the carry trade when investors borrow low yielding currencies like the yen to invest in higher yielding assets.
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