Sterling rises broadly

Sterling rose broadly on Wednesday, nearing its highest in 17 months versus the dollar, as data showed the UK economy grew 0.5 percent in the first quarter, confounding speculation about a weaker number. The pound could extend gains to test a recent high of $1.6600 if the US Federal Reserve, in an announcement due later on Wednesday, points to US monetary policy remaining loose and puts the US currency under pressure.
The GDP data was in line with the Reuters consensus forecast, but traders said the market had positioned for a weak reading which drove investors to cut short positions initiated before the data was released. "The market had expected a reading of 0.3 or 0.4 percent in GDP and there was a collective sigh of relief," said Glenn Uniacke, senior FX dealer at Moneycorp. Analysts said the UK GDP data was probably too weak to prompt a Bank of England rate rise as soon as next month, though the data still left open the possibility of a rate hike in the summer.
Sterling was up 0.3 percent at $1.6535 against the dollar, around 0.8 cents above where it was trading just before the release of the GDP data. Traders said offers just ahead of $1.6600 limited sterling's gains and it pulled back a little after hitting a high for the day of $1.6582. A move above $1.6600 would mark its highest since early December 2009.
The euro was down 0.25 percent at 88.60 pence. Speculation about a weak UK GDP number had pushed it as high as 89.23 pence just before the data, a pip shy of its recent six-month high at 89.24 pence. Support lay at the 21-day moving average at 88.23 pence. Traders said talk of sterling demand related to a dividend payment had also supported the pound earlier in the day.