LONDON: Sterling soared to a fresh near-6-year high against the dollar on Wednesday and a 1-1/2-year peak against the euro after data showed British construction activity growing at its fastest in four months, beating forecasts.
The PMI index of sentiment among purchasing managers in the construction sector rose to 62.6 in June from 60.0 in May, its highest level since February and well above economists' forecast for a dip to 59.5. A level above 50 represents growth.
The pound rose to $1.7180 after the data from $1.7151 beforehand, its highest since October 2008, beating a near-six-year high of $1.7167 hit in the previous day.
The euro dipped by around a third of a percent to 79.510 pence against sterling, the lowest since September 2012, from 79.665 pence before the data was released. Traders cited an option barrier at 79.50 pence which was increasingly under threat.
The construction data is the latest in a series of forecast-beating numbers showing that the UK's economic recovery is picking up steam, bolstering expectations that the Bank of England will raise interest rates by the end of this year.
"Growth expectations are once again adjusting higher for the UK," said Manuel Oliveri, a strategist at Credit Agricole. "There was a little bit of uncertainty if the UK could keep the same growth momentum but the most recent PMI releases support the notion that business activity is continuing to hold up."
The manufacturing PMI survey on Tuesday also beat expectations, while figures released by mortgage lender Nationwide earlier on Wednesday showed UK house prices rising at their fastest annual pace in more than nine years in June, with London prices jumping the most since 1987 in the first quarter.
Nationwide Chief Economist Robert Gardner said speculation that the BoE will raise interest rates later this year or early in 2015 was already pushing up longer-term market interest rates.
The sterling overnight interbank average rates - the very short-term interest rates which form the basis of lending costs to the wider economy - were pointing to the risk of a rate hike in December.
The growing expectation of that rate hike has pushed the pound up over 10 percent against the dollar over the past year and to its highest against a basket of all major currencies in almost six years. The index was up at 88.8, data from the BoE showed.
Some analysts were cautious about further sterling gains given some risk factors developing on the horizon.
"The Scottish independence vote, fear of Britain exiting the European Union, the lopsided nature of the UK recovery, all are being ignored with gusto by a market that needs a trend to get its teeth into and reckons it has found one," said Kit Juckes, a currency strategist at French bank Societe Generale.
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