Sterling rose against the Euro and Dollar on Thursday, but plummeted against the Japanese Yen, as expectations the Bank of Japan could indicate an end to its ultra-easy monetary policy next week mounted.

The Pound dipped 1.3% against the Yen, its biggest one-day fall against the currency in close to five months.

So far this month, Sterling has held firm following its largest monthly rally in a year in November, Reuters reports. Investor bets are increasing the major central banks will slash rates in early 2024, yet the Bank of England may be a likely exception.

According to futures markets, investors believe the first Bank of England rate cut may not take place until June, compared to March for the Federal Reserve and European Central Bank.

The Yen’s rally on Thursday stemmed from comments by Bank of Japan Governor Kazuo Ueda, saying the BOJ has a number of options “on which interest rates to target once it pulls short-term borrowing costs out of negative territory,” the Reuters report adds.

“The choice of wording – 'once', not 'if' – suggests the BOJ remains committed to normalising policy, most likely around the start of the fiscal year in April,” said City Index analyst David Scutt.

“But with markets bringing forward the expected timing and scale of rate cuts from other major central banks, such a move would be incredibly risky, creating a scenario that could send the Japanese Yen sharply higher against currencies of its major trading partners.”

At the time of writing, Sterling was up 0.2% against the Dollar at $1.2587, and 0.1% against the Euro at 85.65 pence. Meanwhile, against the Yen, the pound fell 1.45% at 182.31 Yen, a low not seen since the end of October.

Markets forecast the Bank of England will leave rates unchanged at the meeting next week.

The BoE’s "higher for longer" scenario has given the Pound a degree of support.

“When it comes to Euro/Sterling, the drop appears to be overdone, and we expect a gradual dovish repricing in Bank of England rate expectations to favour a rebound above 86.00, although that may not happen in the very short term,” said ING strategist, Francesco Pesole this week.