LONDON: Sterling was subdued on Thursday, trading below a seven-week high against the dollar, with investors steering clear of the currency after Bank of England Governor Mark Carney kept the option of further monetary easing on the table.
Carney told lawmakers on Tuesday he was "absolutely serene" about the way he warned of a possible Brexit hit to the economy before the referendum, despite the raft of robust data in the past few weeks. In a written report to the Treasury Committee in parliament, Carney reiterated his view the BoE remained ready to take "whatever action is needed" to help the economy.
Sterling was flat against the dollar at $1.3350, having fallen for the first time in six days on Wednesday, and retreating from a seven-week high of $1.3445 struck on Tuesday.
"Clearly the market had expected more optimistic comments," said Esther Reichelt, currency strategist at Commerzbank.
"Yes, the immediate shock of uncertainty did not arise, partially probably as a result of the BoE's market calming measures, and partially as weak sterling is fuelling the economy via exports and domestic tourism. However, the risks entailed by the exact details of Brexit remain an issue - for the BoE and the currency market."
On Wednesday, weak British manufacturing output data for July painted a less rosy picture of the aftermath of Britons' vote in June to leave the European Union, serving a reminder to investors about the risks lurking.
The data were the first official figures to cover output solely for the period after the vote. Britain was plunged into political chaos in the weeks after the vote and before the formation of a new government under Prime Minister Theresa May.
Nevertheless, sterling has rebounded against the dollar since hitting a three-decade low in July, with speculators trimming record high bets against it and sentiment bolstered by the recent slew of better-than-expected activity data.
On Monday, the Purchasing Managers' Index (PMI) for the dominant services sector showed the biggest one-month gain in the survey's 20-year history. The survey echoed the upbeat tone of data released last week on the manufacturing and construction sectors in August.
Against the euro, sterling was slightly lower at 84.35 pence , with eyes on the European Central Bank and whether President Mario Draghi will point to further easing in policy.
"What will be interesting will be how Draghi discusses the plans to weather the lingering impacts of Brexit while attempting to convince participants that the ECB still has some ammunition to revive growth," said Lukman Otunuga, analyst at FXTM.
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