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Market rates at publication: GBP/EUR: 1.1306 | GBP/USD: 1.3707Bank transfer rates: 1.1080 | 1.3423Specialist transfer rates: 1.1220 | 1.3611More about bank-beating exchange rates, hereThe British Pound has responded to an improvement in sentiment amongst global investors by appreciating in value against the Euro, Dollar, Franc and Yen.

European and Asian stock markets have gone higher in mid-week trade while futures for U.S. markets are also suggesting a solid opening on Wall Street, suggesting that Sterling's performance has a global flavour to it.

The general setup therefore suggests the UK currency is now displaying a positive correlation to trends in investor sentiment, with today's gains against the Euro and Dollar correlating with a more confident stock market.

"Risk sentiment was more positive in Asia, partly on US fiscal stimulus hopes, with the incoming Biden administration proposing an additional $1.9tn on top of the $900bn package passed by Congress late last year. Treasury Secretary nominee and former Fed Chair Janet Yellen yesterday urged lawmakers to “act big” on the next fiscal package. She also signalled some hard-line policies on China would continue," says Hann-Ju Ho, Economist at Lloyds Bank.

Based on this emerging relationship, the UK currency could extend higher should a trend of improving sentiment and stronger equity markets continue.

"Our FX Risk Index remains in strongly risk-seeking territory," says Manuel Oliveri, FX Strategist at Crédit Agricole in London.

"The generalised pull higher in risk appetite has supported Sterling," says Jeremy Thomson-Cook, Chief Economist at Equals Money.

The latest developments could signal an evolution away from Brexit-related issues and towards a more predictable relationship with markets for Sterling in 2021.

The Pound-to-Euro exchange rate has risen by 0.50% to quote at 1.1300, meanwhile the Pound-to-Dollar exchange rate is quoted at 1.3671, up 0.40% on the day.

The outlook for the Pound could well lie with how the global economic recovery progresses and how long investors can continue to drive markets higher.

"Although politics and developments on the Covid-19 front around the word should continue to prove a strong driver for sentiment, investors’ focus is also shifting to the US earnings season, which just kicked off. Given the guidance presented so far, the negative surprise potential is likely to be low. Hence, it cannot be excluded that a combination of more aggressive fiscal measures and constructive earnings releases will keep growth expectations and appetite for risk assets supported," says Oliveri.

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The GBP/EUR rally that we saw last week failed at a key technical resistance point during Friday and Monday's sessions, and the pair was in the process of pulling back from this level heading into Wednesday.

We reported earlier in the day the Pound looked liable to retrace its recent gains back to the mid-point of a multi-month range in the GBP/EUR exchange rate, located at 1.11. (Those regular readers of Pound Sterling Live will have been following our coverage of GBP/EUR's approach back up to the important 1.1280 level.)

This level - which translates into 0.8865 in EUR/GBP terms - was identified as a make-or-break point for the Sterling recovery: a break higher could lead to a rapid acceleration into new multi-month highs. But recent history shows that attempts to break above this level tends to fail.

However, given the new thrust higher today could be the day the technical picture finally shifts:

Above: GBP/EUR's failures at 1.1280 risks another pullback to the middle of the range. But a decisive break above here opens the door to higher levels.

"Sterling gains versus Euro have recently been predominantly driven by Euro weakness, taking this pair back up to consistent chart resistance last week. This week, however, trading appears to be boosted by improving GBP sentiment and this morning the currency breached a major technical level against the Euro - 1.1280 - as the UK rolls out vaccines at an impressive rate and the post-Brexit picture is at least clearer," says Joe Tuckey, an analyst for Argentex Group.

Tucket adds that covid-19 continues to drive markets and whilst the UK is rolling out the vaccine at a much faster rate than European counterparts, it seems reasonable that Sterling will on balance be firmer on a comparative basis, despite the spectre of negative interest rate policies potentially capping gains.

"In the mid-term, all eyes will be on the Bank of England as it weighs up the interest rate debate at its 4th February meeting, striking a tricky balance between near term challenges and a vaccine driven recovery,” he adds.