Sterling soared to a nine-month high against the euro on Thursday after European Central Bank policymakers expressed concern about the impact of a trade war with the United states and the potentially harmful impact of the euro's strength.
Investors are wondering whether the ECB's exit plan from its ultra easy monetary policy could be scuppered by a looming trade war between the US and China. ECB policymakers said the euro's firming in recent months was a "significant source" of uncertainty with some predicting a more negative impact on inflation, the minutes of meeting showed.
The announcement helped strengthen sterling to 86.43 pence per euro, its strongest since June 9, up 0.8 percent on the day and headed for its biggest one-day gain against the single currency since January. "We think a move towards (pound-euro) parity looks unlikely at this stage," ING FX strategist Viraj Patel, said in a note, adding that he saw the pound strengthening to 0.85 pence per euro by the end of 2018.
The pound continued a recent rally against the dollar trading up 0.4 percent at $1.4199. Traders are preparing for a flurry of data on British unemployment, wages and inflation numbers next week that could help shore up expectations of a May interest rate hike.
"The pound is pressed up against some key resistance levels," said Michael Hewson, chief analyst at CMC Markets, noting that sterling was struggling to push past $1.425. Markets expect the Bank of England to raise rates next month as it tries to curb inflation, although the probability of a hike happening has fallen to 66 percent from more than 70 percent in previous weeks after some recent British economic data was weaker-than-expected. Most analysts still expect the bank to increase rates, as Brexit-related risks had subsided for now and wage data still pointed upwards.
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