LONDON: Sterling rose towards seven-year highs against the euro on Tuesday, helped by stronger-than-expected UK manufacturing data which followed robust private sector surveys last week.
Manufacturing output rose 0.1 percent in December after growth of 0.8 percent on the month in November, confounding predictions in a Reuters poll of a 0.1 percent fall.
Overall industrial output slowed further at the end of last year, however, hurt by maintenance work on North Sea oil and gas fields. It fell by 0.2 percent in December, compared with economists' average forecast of a 0.1 percent rise, after no change in November, the Office for National Statistics said.
Traders brushed the drop aside, with sterling rising 0.1 percent to $1.5230. Against the euro it was up 0.3 percent at 74.20 pence, not far from a seven-year high of 74.06 pence struck on Jan. 26.
"Sterling reacted favourably to the better-than-anticipated manufacturing production data," said Alejandro Zambrano, analyst at FXCM. "This coupled with last week's good UK PMI numbers should lead to investors anticipating a slightly more bullish BoE going forward."
Purchasing managers' surveys for Britain's manufacturing, construction and services sectors all came in ahead of forecasts last week. Earlier on Tuesday, an economic think tank said Britain's economy was on track for its strongest growth in nearly 10 years in 2015.
Attention will now shift to Thursday's Bank of England inflation report, which is likely to update growth and inflation prospects and could prompt investors to revise their expectations of when a first post-crisis rate hike will come .
The BoE kept rates unchanged last week. At its meeting in January, two policymakers who had previously voted for a rise dropped their call as inflation tumbled to decade lows and wage growth remained subdued.
Investors are also likely to be cautious on the pound ahead of a parliamentary election in May that could open the door to a referendum on Britain leaving the European Union. Traders said a number of hedge funds were taking bets against the pound in the run-up to the election.
"By not commentating on the currency and maintaining a tightening bias, the BoE stands out from the dovish central bank choir so far this year," said Jonathan Webb, head of currency strategy at Jefferies.
"This gives some support to the pound for now, though we are wary of political risk posing a drag in the medium term."
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