LONDON: Sterling rose to a near four-year high against a beleaguered yen on Friday, with the pound drawing support from a pick-up in activity in the British economy that has lessened the chances of more monetary easing in the near term.
Data showed Britain's trade gap narrowed in March and capped a week when most economic numbers like industrial data and house prices surprised investors who were positioned for far worse outcomes.
Attention now turns to next week's Quarterly Inflation Report where it is expected the Bank of England's monetary policy committee will note easing price pressures, the recent pick up in economic activity and possibly signal that further monetary easing is not imminent.
That should help sterling in the near term, especially against the euro and the yen, traders said.
Against the euro, sterling was flat at 84.40 pence , while against a broadly firmer dollar it was 0.3 percent lower on the day at $1.5400.
The dollar was higher after encouraging labour market data on Thursday in the US rekindled expectations that the Federal Reserve may slow its asset purchase programme later this year.
While the dollar rose to a 4-1/2-year high against the yen , sterling jumped to its highest since August 2009, rising to 156.67 yen, up 0.6 percent on the day and 12.4 percent higher on the year.
The euro also rose to a 3-year high of 132.26. The yen was hurt by data that showed Japanese investors were buying foreign bonds. Some of those flows could make it to the UK which offers higher yields than Japanese bonds.
"Both sterling/yen and euro/yen have risen, but we expect dollar/yen to be the leader," said John Hardy, currency strategist at Saxo Bank. "The labour market data has seen talk of Fed going slow on further asset purchases recirculate. That is helping the dollar make a statement across the board."
While the BoE is likely to keep monetary policy on hold in the near term, expectations remain strong that incoming governor Mark Carney could take aggressive measures to kick-start the economy when he takes over in July.
"Unlike the Fed, the BoE likely won't shift to less easing anytime this year, so the market can't price much in terms of relative monetary policy tightening," said George Saravelos, currency strategist at Deutsche Bank.
"We see the last few weeks' squeeze in sterling as an excellent opportunity to re-add shorts."
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