Sterling climbed strongly against the dollar on Friday after slightly softer-than-expected US inflation data tempered investors' recent appetite for the greenback, helping the pound hit a 10-week peak against a trade-weighted basket of currencies. Core US consumer price inflation came in marginally below expectations and was seen as reducing the likelihood of the Federal Reserve tightening monetary policy earlier than it had pledged.
The data prompted a squeeze of long dollar positions that had been built on the back of a recent run of stronger data and rising Treasury yields, pushing sterling up nearly 1 percent on the day against the greenback to $1.5851. Gains against the dollar drove trade-weighted sterling to 81.7, Bank of England data showed, while the euro fell to a one-month low against the UK currency. The pound also rallied against the under-pressure yen, reaching a nine-month high of 132.43 yen.
Sterling took a slight hit after ratings agency Fitch joined Moody's in placing the UK's AAA sovereign rating on negative watch on Wednesday, but strategists said a downgrade may not have a lasting impact after some other European sovereigns lost their triple-A status this year. The euro slipped to a one-month low of 82.93 pence, before recouping some losses to last trade down 0.1 percent on the day at 83.12 pence. Traders said euro selling at the European Central Bank fixing had knocked the common currency, while a Swiss bank was also a noted seller.
"We are seeing a lot of short (sterling) positions squeezed higher before the weekend after the slightly weaker numbers we have had out of the US," said Audrey Childe-Freeman, EMEA head of currency strategy at J.P. Morgan Private Bank. Traders said stop-loss buy orders in sterling against the dollar were triggered on the break of $1.5750, with technical analysts also highlighting the break above the 21-day moving average at $1.5786. The pound moved well clear of a seven-week low of $1.5603 hit at the beginning of the week.