LONDON: Sterling soared to an 11-month high against the dollar on Wednesday after third-quarter UK gross domestic product data showed a recovery broadening, driven by increased consumer spending and business investments.
As initially estimated, GDP from July to September grew by 0.8 percent from the second quarter, its fastest pace in more than three years. In year-on-year terms, growth was 1.5 percent, also unchanged from last month's preliminary estimate by the Office for National Statistics.
"The GDP data shows that a gradual recovery is taking place and in the short term at least we can look forward to some more good data," said Alex Edwards, head of corporate sales at UKForex. "That could see sterling rise to $1.63 and set a new trading range."
The pound rose to $1.6288, having triggered stop loss buy orders on the break above $1.6260 and hitting its highest level since early January.
It was trading at $1.6235 before the GDP data was released and dipped initially after the numbers came out, as some had positioned for a 0.9 percent quarter-on-quarter reading.
The euro also fell against sterling. The single currency was trading at 83.55 pence, down 0.1 percent on the day. The euro was trading at 87.76 pence before the data was released.
The pound was expected to face resistance at 83.33 pence - equivalent to 1.20 euros per pound and a level at which UK importers often look to sell the UK currency - as well as at the early November peak of 83.00 pence.
The euro also underperformed the pound, reflecting diverging monetary policy outlooks. While the European Central Bank is likely to loosen monetary policy to ward off disinflation in the economy, markets are pricing in the chance of a rate hike in the UK in two years time.
Those expectations remained intact even though Bank of England Governor Mark Carney reiterated in testimony before UK lawmakers on Tuesday that interest rates would not necessarily rise even if unemployment falls to 7 percent.
As such, the spread between 10-year British and German government bonds widened slightly to 105 basis points, having hit an eight-year high of 109.4 basis points last week.
Focus will now turn to the Confederation of British Industry's November distributive trades survey at 1100 GMT.
"Market consensus forecasts are for a strong rebound following last month's decline, but if this fails to materialise, sterling is likely to come back under pressure," Morgan Stanley said in a morning note.
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