LONDON: Sterling rose against the dollar on Tuesday, with the greenback pegged back by expectations that the Federal Reserve may choose to keep interest rates lower for longer.
The dollar edged down across the board as a two-day Fed policy meeting started. Investors were betting the Fed could respond to a recent string of rate cuts and easing measures by other major central banks by pushing back expectations of when U.S. rates will rise.
Consumer confidence rose, but a gauge of U.S. business investment plans fell for a fourth straight month in December, a potential sign that slowing global growth and falling crude oil prices were starting to have an impact on the economy.
Sterling was up 0.9 percent at $1.5215, although it lagged gains seen in the euro. The euro was up 0.6 percent against the pound at 75 pence.
Earlier in the day, sterling saw a brief dip to $1.5060 when Britain reported economic growth that was weaker than forecast but still outstripped its euro zone peers.
UK gross domestic product grew by 2.6 percent in 2014 as a whole, the Office for National Statistics said on Tuesday, up from 1.7 percent in 2013. The slowdown to 0.5 percent growth in the fourth quarter was bigger than expected, but the annual figure was still the strongest growth Britain has seen since 2007.
"There is a bout of short covering which is pushing sterling higher against the dollar," said a spot trader. "The U.S. durable goods data prompted some to cut longs in the dollar and there is talk that the Fed may postpone rate hikes."
Sterling had taken some heart on Monday from suggestions by Bank of England Monetary Policy Committee member Kristin Forbes that the bank might raise rates sooner than many people expect.
On Wednesday, investors will await a speech from BoE Governor Mark Carney. At the weekend, he said the central bank has the ability and the duty to return usually low British inflation to its 2 percent target within the next two years.
"While today's GDP release may give more ammunition to the doves, it is by no means a game changer just yet," said Timo del Carpio, economist at RBC Capital.
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