Sterling hits one-week high vs euro on better than expected UK GDP data

LONDON: Sterling rose to a one-week high against a struggling euro on Tuesday after data showed the British economy grew at a faster pace in the fourth quarter of last year than previously estimated.

Gross domestic product between October and December grew by a quarterly 0.6 percent, the Office for National Statistics said, compared with 0.5 percent in a previous reading and matching the pace of growth in the third quarter.

The euro fell to a low of 72.46 pence, from 72.785 pence, down 0.8 percent on the day. Against the dollar, sterling recouped losses to trade at $1.4800 having traded at around $1.4765 before the data was released.

"Sterling was outperforming the euro as a function of the move in euro/dollar but the better than expected UK GDP data increased the propensity of sterling to do better than the euro," said Jane Foley, senior currency strategist at Rabobank.

"The upward revision in GDP again provides reassurance that the recovery is very much on track. The fact that consumption remains strong suggests that there is no real risk of the Bank of England having to cut interest rates."

The growth data provided some respite to the pound which has struggled in the past few days on growing expectations that the Bank of England will keep interest rates lower for longer and on rising uncertainty from a general election next month.

"Even though inflation is very low and is likely to stay low for some time, as long as the consumer is consuming and confidence is high and wages are not being cut, it is so difficult to say that the UK has a deflationary mindset," said Foley, adding that the next move by the BoE was likely to be a rate hike.

British finance minister George Osborne, whose Conservative Party faces a tough challenge in a parliamentary election in May, tweeted that the data confirmed Britain was the fastest growing major advanced economy.

The latest opinion polls point to a hung parliament in which no single party can form a government on its own, creating a lot of political uncertainty.

"We have had a lot of noise about the election. Given the uncertainty, I think cable (sterling/dollar) could head somewhat lower but euro/sterling is fairly priced," said John Hardy, FX strategist at Saxo Bank.