Sterling rose to its highest in more than four months against a weak dollar on Friday, with the US currency under pressure on month and quarter-end rebalancing flows combined with expectations US monetary policy will stay ultra-loose Gains against the greenback lifted sterling to a 13-month high against a trade-weighted basket of currencies, data from the Bank of England showed.
Trade-weighted sterling rose to 81.90. Technical analysts said sterling's break above its 200-week moving average against the dollar for the first time since August 2008 could be a bullish signal, though a weekly close above that level at $1.6014 would be needed for confirmation.
"Is the pound about to embark on life above 1.60? We shall have to see," said Kathleen Brooks, research director at Forex.com. "The expectation from the OECD that the UK is about to fall into another recession makes quantitative easing more likely in May in our view. Thus, the move higher in sterling could be a bit premature."
Sterling rose to $1.6037, its strongest since November 14, and was last trading at $1.6000, up 0.3 percent for the day. Traders reported a large option barrier at $1.6050 and stops above that level. For the quarter the UK currency in on track for its best performance since end-2010. Further support came from expectations that Gaz de France's bid to buy the remainder of the UK's International Power for 6 billion pounds could lead to the French firm needing to buy large quantities of sterling.
But sterling's gains lagged the euro, which was slightly higher 83.47 pence, right in the middle of this month's 82.83/84.24 range. Sterling was also helped by month-end flows, which analysts said were expected to be broadly negative for the dollar. The dollar also ceded ground after Chicago PMI data printed below expectations.
"The outperformance in US equities of late means portfolio rebalancing at month and quarter-end points to a weaker dollar. Everyone is looking for a softer dollar today and that's helped sterling get back above $1.60," said Ankita Dudani, currency strategist at RBS.
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