LONDON Sterling held strong near its highest in a week on Thursday, some more upbeat British housing data helping soothe nerves over domestic economic growth as comments by U.S. President Donald Trump on taxation sent the dollar broadly higher.
The pound has been rocked by weaker signals on the economy over the past week, suggesting British consumers are finally beginning to feel the pain generated by an almost 20 percent fall in the currency that should push domestic prices higher.
Data earlier this week also showed the first falls in house prices since August, but Thursday's Royal Institution of Chartered Surveyors (RICS) price index bucked expectations for a further modest loss of pace.
That sent the pound as high as $1.2582 in morning trade in Europe before Trump's promise of a "phenomenal" announcement on tax to support U.S. growth and investment.
"The move right now has been on the Trump comments, which caused a sell-off in rates and that gave a bit of strength to the dollar," said Richard Cochinos, European head of G10 currency strategy at Citi.
"Both the euro and sterling are actually remaining a bit stronger than the Asian currencies, although I would be cautious. I think the market needs to see confirmation of weaker UK data before it will be more comfortable (selling the pound)."
By 1630, sterling was just 0.1 percent lower on the day at $1.2529 and 0.2 percent stronger at 85.10 pence per euro.
The UK economy surprised investors last year when it outpaced its peers among the world's big rich nations, driven by the spending of households that shrugged off the vote to leave the European Union.
But the results of a regular Bank of England survey on Wednesday showed British employers plan to offer the least generous pay deals since 2012 this year. Industrial output data is due early on Friday.
A number of major banks are still calling for the pound to fall by up to another 10 percent in the months ahead as the Brexit process develops, but it has resisted any push below $1.20 since the start of November.
"It has been a really messy 10 days," said a dealer with one London-based bank.
"The dollar bulls are licking their wounds after the past month, there are a lot of nerves on sterling again, but it seems like a split decision where we go from here."
(Writing by Patrick Graham; Editing by Toby Chopra and John Stonestreet)