LONDON: Sterling rose on Thursday as global risk sentiment improved and analysts said the prospects of a Bank of England rate hike reduced some downside potential for the currency.
Sterling erased all of its strong gains for 2021 in September amid concerns about British economic growth and rising inflation, while the country grappled with a fuel crisis.
But by 1445 GMT, the British currency had risen 0.3% to $1.3635 versus the dollar, after it slid on Wednesday back towards its weakest level since December 2020.
It rose 0.25% versus the euro to touch its highest of 84.82 since mid-August.
Improved global risk sentiment on Thursday lent some support to the risk-sensitive pound, after Russian President Vladimir Putin promised to boost gas supplies and European stocks climbed into positive territory.
Analysts said the prospects of an interest rate hike in Britain were also supporting the pound.
Markets have "supported the GBP against the EUR thanks to BoE hike bets despite the combination of domestic risks in the UK", said Shaun Osborne, chief FX strategist at Scotiabank.
UniCredit Research analysts told clients that the prospect of higher rates in Britain was reducing "the downside potential" for the pound versus the dollar as well.
Markets currently expect a 15 basis point rate rise in December and additional hikes in 2022.
Analysts have also flagged that sterling has reacted very little to renewed post-Brexit uncertainties and problems with the trading situation of Northern Ireland.
Meanwhile, energy regulator Ofgem said more British energy suppliers could go bust as high wholesale energy prices are set to continue.
Data from mortgage lender Halifax showed British house prices rose by the most in almost 15 years in September ahead of the end of a tax break for house buyers and they were expected to continue their climb to new record high levels.