Sterling rises to hit 9-day high against struggling dollar

LONDON: Sterling rose against a weakened dollar on Wednesday, after comments from the Federal Reserve chief left investors convinced that U.S. interest rates would not rise anytime soon and drove many to cut favourable bets on the greenback.

Sterling was up 0.4 percent at $1.4435, gaining for a third straight day and hitting its highest level in 9 days. The pound underperformed the euro, with the European single currency steady at 78.50 pence.

In a surprise to many investors, Fed Chair Janet Yellen opened the door for more dollar weakness, stressing the need to be cautious in raising interest rates and highlighting external risks including low oil prices and slower growth abroad.

Yellen's comments sent the dollar index down by 0.8 percent - its biggest one-day fall in two weeks - to a 12-day low of 94.79, with investors pricing in chances of a rate hike only towards the end of the year.

"The pound's rise is mostly dollar driven. The market has been surprised by Yellen's cautious comments, especially given core inflation was nudging higher. But 'Brexit' concerns should limit the pound's gains," said Manuel Oliveri, currency strategist at Credit Agricole.

Trade-weighted sterling had hit a two-year low last week , driven by increasing anxiety over a June 23 referendum on whether Britain should stay in the European Union.

Investors worry that leaving the European Union would hit growth and threaten the huge foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developed world at about 4 percent of national output.

The uncertainty was also pushing back expectations of when the Bank of England will start to raise interest rates.

Ructions within the ruling Conservative party and Islamist bomb attacks in Brussels last week had seen the chances of a "Brexit" implied by bookmakers' odds rise and sent sterling down almost 2 percent over the course of last week.

But by Tuesday most bookies had widened their odds again, with betting website Betfair showing the implied probability of a Brexit back down around 33 percent. Also two polls since Thursday have shown the campaign for Britain to stay in the EU still ahead still, all of which have helped calm fears about "Brexit" in the near term.