Market News

By Stefano Rebaudo

(Reuters) -Sterling rose against a weakening dollar on Friday and was set to end the week higher after upbeat economic data and a hawkish rate cut by the Bank of England.

Sterling, which has gained 8.5% this year against the dollar, was last up 0.15% at $1.3549. It hit a session peak of $1.3594 on Thursday, the highest since July 7. It was about to end the week with a 0.70% rise.

The greenback slipped, after rising the day before, as investors remained cautious about the rate outlook ahead of import price data.

“RBC BlueBay retains a negative view on UK assets but doesn’t think that gilts are an attractive short at the time being due to valuation,” said Mark Dowding, BlueBay chief investment officer, RBC BlueBay Asset Management.

“However, should sterling continue its recent rally as hopes for further BoE rate cuts fade, then the pound may be an attractive way to express a structurally negative view on the dynamics within the UK over the months to come,” he added.

Dowding expects inflation to remain around 4%, even as the economy grapples with negligible growth.

The Bank of England cut interest rates by 25 basis points to 4% last week, but only after a narrow 5-4 vote. That suggested the BoE may adopt a cautious stance on further cuts due to persistent inflation concerns, even as job losses worsen.

The euro rose against the pound after recent falls, and was last up 0.19% at 86.22 pence. It hit 87.69 pence late last month, its highest since May 2023. The single currency was also set for a weekly drop of 0.35%.

Some analysts flagged that the positive impact on the pound from Thursday’s stronger headline growth could be dampened somewhat by the less favourable breakdown of expenditure.

Growth was mainly driven by increases in government consumption and the other category of gross capital formation, which includes changes in inventories, while private consumption and business investment were weaker than expected.

(Reporting by Stefano Rebaudo; editing by Alex Richardson)