"We think there is room for this cross [EUR/GBP] to trade higher but we step aside for now on the rapid gains and on liquidity issues. We will consider re-initiating on a dip" - TD Securities.

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The Pound to Euro exchange rate has appeared to be finding a footing near the round number of 1.13 and some strategist commentary suggests this might be the result of speculative short-sellers booking profits on bets against Sterling with a view to reloading at better levels up ahead.

Pound Sterling fell widely during the opening days of the week and on what were public holidays for many countries around the world though it stabilised in mid-week trade on Wednesday and appeared to be establishing a foothold above 1.13 by Thursday.

"We entered this trade following the ECB's pivotal shift at its last meeting on December 15th. Our basis for the position was that the ECB's terminal rate would become more fluid in what we describe as a hawkish divergence from the Fed and even more so relative to the BOE," says Mazen Issa, a senior FX strategist at TD Securities.

"With the ECB in a 'leadership' position on policy, we thought that there would be additional EUR gains against currencies that have held their ground in relative terms (which in this case was GBP) as real rates are likely to move higher," Issa writes in a Tuesday note to clients.

Issa and colleagues had sold Sterling for Euros shortly after the European Central Bank (ECB) indicated earlier in December that market expectations for its interest rates have been too low and could be likely to rise somewhat further next year.

Above: Pound to Euro rate shown at daily intervals with Fibonacci retracements of late September rally induced by BoE intervention in bond market and selected moving averages. Retracements indicate possible technical support and moving averages forms of resistance. Click image for closer inspection.

"We think there is room for this cross to trade higher but we step aside for now on the rapid gains and on liquidity issues. We will consider re-initiating on a dip," Issa says of the EUR/GBP exchange rate.

The TD Securities team made a 1.87% profit in their model portfolio after doing the equivalent of selling GBP/EUR around 1.1514 and booking profits around 1.1303 on Tuesday.

Trading volumes have been lower than usual this week owing to the recent festive break in Northwestern hemisphere markets, which can have a suppressive effect on risk-taking activity among traders into the New Year.

"It doesn't take much to move around a market like this so trades that would normally be low impact could actually push things around and that makes these moves hard to read on a day-to-day basis," writes Brad Bechtel, global head of FX at Jefferies, in a Wednesday market commentary.

Above: Changes in interbank trading volumes for major currency exchange rates on Tuesday 27 December. Source: Goldman Sachs Marquee. Click the image for closer inspection.

Meanwhile, when it comes to fundamentals, Sterling's mid-week boost may have been the result of improved sentiment about the economy.

This is after representatives of the retail industry suggested on Wednesday that festive holiday footfall in major urban shopping centres rose significantly when compared with that of 2021, and in spite of widespread disruption of rail travel.

"Despite rail strikes and more expensive fuel costs, shoppers were back in force not only in the two strongest retail areas of the Southeast and London but across the country as a whole," writes Humphrey Percy, Chairman of SGM Foreign Exchange, in a Wednesday market commentary.

"Despite the best efforts of the online commentators to pour cold water on this boost to retail sales, the fact is that in Northern Ireland footfall was 5 times that of the same period last year and in London more than 130%," he adds.

However, it's also possible that developments in China have played a role in crafting the pecking order of performance among major currencies after officials said the government intends to abandon many of its restrictions on travel to and from the country in January.