Sterling rises after UK growth in line with expectations

LONDON: Sterling rose against the dollar and the euro on Thursday after data showed Britain's economy growing in line with expectations in the fourth quarter, offering some relief to the battered pound.

Fourth-quarter gross domestic product grew by 0.5 percent, up slightly from 0.4 percent in the three months to September, the Office for National Statistics said on Thursday. This was in line with economists' forecasts.

GDP in the three months to December was 1.9 percent higher than a year earlier and also met expectations. Growth was, however, down from 2.1 percent in the third quarter and the smallest increase since early 2013.

Sterling rose 0.7 percent to the day's high of $1.4333 , up from around $1.4263 beforehand. Sterling hit a seven-year low of $1.4080 last week and has shed around 5.3 percent since the start of December, on a combination of concerns over the referendum on a British exit from the European Union and fading expectations for higher UK rates.

Currently, investors are pricing in a chance of a rate hike in the second half of 2017, having been pushed back from late 2016 in the past few weeks.

"It is a bit of relief rally for sterling. The data was not too negative to impact rate expectations. Overall we believe the economy is doing pretty OK, as are inflation expectations, all of which should not see the BoE be too dovish," said Manuel Oliveri, FX strategist at Credit Agricole.

Steadier crude oil prices were also offering some support for the pound, traders said.

Sterling has suffered from the slide in oil and stock markets which has dominated the start of 2016. The country runs a substantial current account deficit, hence the currency tends to come under pressure during times of financial market stress.

But the fourth-quarter growth data showed the economy growing at a moderate pace, keeping alive expectations of a rate hike by the Bank of England. In contrast, the European Central Bank is likely to expand its monetary stimulus programme in March, a factor that should keep the euro capped.

The euro was down 0.2 percent at 76.38 pence, compared with 76.60 pence before the GDP data was released.

"If risk sentiment stabilises, the divergent monetary policies between the BoE and the ECB should push the euro lower against the pound," said a London-based spot trader.