Sterling hit a one-month high versus the dollar on Wednesday after data showed Britain's services sector expanded faster-than-expected in July, but an interest rate cut this week remained probable.
The Chartered Institute of Purchasing and Supply/NTC Research said its services business activity index rose to 56.3 in July from 55.8, against a forecast of a dip to 55.4 and well above the 50 mark that divides growth and contraction. But prices charged rose at their weakest pace since in 1-1/2 years and input costs saw their mildest rises in nearly the same period, suggesting inflation remains tame in the sector that makes up the bulk of the economy's output.
By 1426 GMT, sterling was up over half a percent versus the dollar at $1.7806 after hitting $1.7831 earlier in the session. But it was down 0.52 percent against the euro at 69.20 pence.
"Service PMI came in better than expected, and that, together with the improvement in consumer confidence last Friday might have left some getting second thoughts about the rate cut tomorrow," said Neils From, senior currency analyst at Danske Bank in Copenhagen.
"But I expect a 25 basis point (bps) cut and two 25 bps cut in the last quarter of 2005 and first quarter of 2006," From said.
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