LONDON: Sterling rebounded from a five-week low against the dollar on Thursday, boosted by renewed weakness in the greenback after the Federal Reserve kept monetary policy steady and projected a less aggressive path for rate hikes in coming years.
While the Fed strongly signalled it could tighten monetary policy by the end of the year, policymakers cut the number of rate increases they expect this year to one from two. That put pressure on the dollar and helped relieve some of the selling that the pound had witnessed this week.
Sterling was up 0.3 percent at $1.3071, bouncing from a five-week low of $1.2946 struck on Wednesday. That low was not far from a three-decade trough of $1.2798 struck in early July, shortly after Britain's shock vote to leave the European Union.
The euro was flat against the pound at 85.93 pence , not far from a one-month high of 86.31 struck earlier this week.
Investors will now focus on a speech from Bank of England chief Mark Carney in Berlin. Earlier this month, in a testimony to lawmakers he kept the door open for more monetary easing, despite recent UK data surprising on the upside.
"We will be looking for signs on whether he thinks there is need for another rate cut soon," said Hans Redeker, head of currency strategy at Morgan Stanley. "A key level to watch to the upside for sterling/dollar is the 50-day moving average at $1.3147."
Traders said gains in sterling are likely to be limited as worries over Britain's exit from the EU and its impact on the economy have firmly come back on investors' radar.
Late last week, sentiment towards the currency soured on a media report that said UK Chancellor of the Exchequer Phillip Hammond was ready to give up access to the single market to achieve immigration restrictions during the Brexit negotiations.
Analysts said the lingering uncertainty is likely to force the Bank of England to remain dovish and weigh on the currency.
"The central bank's policy stance is strongly linked to Brexit-related long-term uncertainty," analysts at Credit Agricole said in a note. "This in turn continues to limit sterling upside from here."
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