LONDON: Sterling climbed for a third day on Thursday, but traded in tight ranges as investors waited for new developments on Britain's decision to leave the European Union which sent the currency to a 31-year low.
The pound plunged almost 8 percent last Friday, the steepest daily decline in the post-1973 floating-exchange-rate era, after the result of Britain's referendum on EU membership stunned markets. Those losses continued into Monday, with sterling shedding another 3 percent and markets firmly in risk-off mode.
But as risk appetite has recovered a little, so has sterling, up almost 2 percent in the past three days against the dollar.
On a trade-weighted basis, sterling was down 0.4 percent on Wednesday's close of trade in London, but up 1.5 percent from a three-year low hit on Monday.
Data showing Britain's vast current account deficit failed to narrow as expected in the first three months of this year, and remained close to an all-time high, failed to dent sterling's recovery on Thursday, with the currency up 0.4 percent at $1.3477.
Analysts said that because sterling's slide was largely driven by projections for the likely impact on the economy of Brexit, backward-looking data such as this was less important.
"The two things this data doesn't pick up are the big improvement in competitiveness on the fall in sterling, and secondly, much weaker domestic demand going forward, which will tend to suppress imports," said RBC Capital Markets' global head of currency strategy, Adam Cole.
Sectors that earn revenues in dollars have benefitted from sterling weakness since the vote, with a rally in oil prices helping the heavily weighted commodity sector.
Other figures showed the economy grew by 0.4 percent in the first three months of 2016, in line with forecasts, and was 2.0 percent larger than a year earlier.
Against the single currency, sterling was half a percent up at 82.45 pence per euro.
Investors drew some reassurance from the fact that British politicians were not rushing to trigger the mechanism for a state to leave the EU, despite European leaders telling Britain to act quickly after last week's referendum.
INTEREST RATES
Bank of England Governor Mark Carney will be watched for clues on interest rates, when he gives policy guidance at 1500 GMT - his second speech since the Brexit vote.
Analysts said money markets were almost fully priced for a rate cut by the Bank of England by the end of the year and around a 50 percent chance of one by August, which should keep sterling weak. Before the vote, they suggested only a 20 to 30 percent chance of a cut by year-end.
"We expect the BoE to ease monetary policy further in the coming months, either through lowering interest rates and/or restarting QE, and/or expanding their 'Funding for Lending' scheme," wrote Bank of Tokyo-Mitsubishi UJF currency economist Lee Hardman in a note to clients.
"Further BoE monetary easing should keep downward pressure on the pound through the rest of this year."
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