LONDON: Sterling edged 0.6% higher on Wednesday against a broadly weaker dollar as the US coronavirus relief package stalled in Congress and US bond yields sank.
Sterling climbed back toward pre-pandemic highs and was advancing towards a five-month peak hit last week versus the greenback.
The British currency rose as much as 0.6% against the dollar to $1.3150 by 1436 GMT and was down 0.1% against the euro at 90.40 pence.
Sterling has had a strong recovery against the dollar in the past few weeks.
It registered its biggest monthly rise in more than a decade in July, although Stephen Gallo, European head of FX strategy at BMO Financial Group, said the surge had more to do with the dollar's weakness than the pound's strength.
"It's all about the dollar," Gallo said. "Congress has not been able to pass an aggressive fiscal stimulus package for the last month or so and you can roughly trace the beginning of the dollar fall to that."
Democrats in the US Congress and White House negotiators are in talks on a new coronavirus relief bill after a deadline was missed on Friday to extend enhanced unemployment payments during the pandemic.
Even data showing that UK services and manufacturing grew at the fastest rate in more than five years last month had little impact on the pound, because all eyes are on the US economy, Gallo said.
A Bank of England policy meeting later this week could bring some short-term volatility to sterling by disappointing investors looking for signs the central bank intends to cut interest rates, ING forex strategist Francesco Pesole said. "There may be some volatility around the meeting, but we expect no key shift in language around the negative rate story."
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