Sterling strengthened on Tuesday, hitting a fresh 14-month high against the dollar as stronger-than-expected UK inflation data increased the chances of an interest rate rise within the next few months. Traders said more gains could be in store for the pound with a rise as far as $1.65 if Bank of England minutes, due out on Wednesday, show a more hawkish bias by policymakers.
The pound was up 0.4 percent to $1.6374 after rising to $1.6403, its highest since January 2010, having triggered stop-losses through the $1.6350 zone. Natural sterling buyers have been quick to pick up cable above $1.63, Moneycorp dealer Chris Redfearn said. He added that importers were generally happy to hedge at these levels and were not waiting for further gains after the 14-month high of $1.6403 hit Tuesday.
Traders reported demand for 1-week sterling options covering the BoE minutes and the Budget on Wednesday, as well as retail sales data on Thursday and G4 GDP data next week. The pound also gained against the euro, with the common currency shedding nearly 0.7 percent to 86.62 pence, retreating from Friday's four-and-a-half month high of 87.59. The spread between 2-year German and UK yields narrowed to around 0.42 percent from 0.51 percent on Monday, putting selling pressure on the euro/sterling fx rate.
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