LONDON: Sterling firmed on Thursday against the dollar, which lost ground after data showed weak economic expansion in the third quarter, though it slipped versus the euro following an ECB meeting which failed to dissipate bets on a 2022 rate hike.
The pound has been buffeted of late by speculation over whether the Bank of England would proceed with an interest rate hike at its Nov. 4 meeting, or hold fire, given concerns around economic growth.
Finance minister Rishi Sunak on Wednesday promised higher public spending, but his budget, while projecting robust 6.5% growth in 2021, also flagged inflation of almost 5% next year.
While that appears to make a rate hike more feasible, the pound displayed little reaction, with focus staying on the possible longer-term economic growth hit stemming from supply chain disruptions, Brexit and potential monetary tightening.
It raced higher on Thursday to the dollar, however, after US data emerged showing the economy expanded at 2%, its weakest rate in a year. The dollar index fell 0.6% to the lowest in a month
By 1600 GMT, sterling was up 0.5% to $1.3779, having earlier traded as high as $1.38150.
Against the euro, the pound slipped 0.3% at 84.65 pence, but held off 20-month highs hit earlier this week on bets around diverging central bank interest rate expectations.
Markets are pricing in a cumulative 34 bps in rate hikes from the BoE by year-end, while the European Central Bank is expected by economists to stay on hold for some years despite markets pricing two rate hikes by end-2022.
At the ECB meeting, its chief Christine Lagarde pushed back against rate hike bets but admitted inflation would be high for longer. Some saw her statement as too timid.
It helped the euro strengthen against the dollar and pound, while southern European bond yields rose.
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