LONDON: Sterling steadied after hitting an eight-week high against the dollar on Wednesday, buoyed by optimism over the UK's economic performance compared with its peers in Europe, which has helped drive British shares to record levels.
Although the pound has been weak against a broadly stronger dollar since last July, it has gained steadily against the European currencies in which it does most of its trade.
In the past month it has also climbed 3 percent against China's yuan. Dealers say sterling is benefiting broadly from the yields available on British government bonds when their equivalents in Europe are at zero.
The gains also seem broadly the product of a steadying of expectations for the Bank of England to deliver an interest rate hike early in 2016, after those expectations were pushed back by more than a year.
Sterling rose to as high as $1.5534, up 0.5 percent on the day before settling around $1.5500 in late trading in London, helped on balance by comments on Tuesday from Bank of England policymakers.
"The rhetoric is still more skewed to the tightening side," analysts from Citi said in a note. "With the first tier data behind us, GBP may be relatively sidelined and take greater cues from the USD."
Policy committee member Kristin Forbes had the most impact in a raft of comments from BoE policymakers on Tuesday, prodding the pound higher by saying rates could rise soon if inflationary pressures pick up quickly.
Recent data on the UK economy, in particular wage growth, has been solid although inflation remains close to zero. The FTSE 100 index hit a record of 6,954.79 on Tuesday, surpassing a previous lifetime high set in December 1999.
Against the euro the pound inched up 0.1 percent to 73.28 pence. Against the trade-weighted index of currencies it was just off a 6-1/2 year high of 91.1 hit on Tuesday.
"This does seem chiefly about the dollar today," said one London-based dealer. "But there is clearly improvement on sterling. We should see soon how much that is just a clearing out of some of the bearish positioning we have seen and how much about inflows to the UK as a safe haven from Europe's problems."
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