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LONDON (Reuters) - Sterling hit its highest point against the dollar in 10 months on Friday, climbing 1 percent after data further undermined expectations for more hikes in U.S. interest rates.
After a rough start to the week driven by poor British economic numbers, the pound is now up almost half a percent in trade-weighted terms, riding out a series of negative headlines on Brexit negotiations with the European Union.
It rose as high as $1.3088 after a closely watched survey of U.S. consumer sentiment came in worse than forecast at 1400 GMT and was also half a percent higher at 87.63 pence per euro.
"It has all really been dollar driven today," said Stephen Gallo, a strategist with Canada's Bank of Montreal in London.
"It is too early for the market to gauge whether the Brexit talks are going to go one way or the other. I still think there will be a lot of resistance around $1.32-$1.33 (to further sterling gains)."
The Bank of England's trade-weighted index stood at 77.1, almost 5 percent above seven-year lows hit last October, but 2.5 percent off highs hit in May when financial investors were banking on an electoral landslide for the ruling Conservatives.
The pound has taken some support from a round of hawkish signals from Bank of England policymakers last week, and there are still some in the market looking out for a rise in interest rates next month.
While British workers saw their pay fall further behind inflation in the three months to May, wages rose marginally more than had been expected, data this week showed.
"Unemployment is lower, wages have shown solid gains over the past three months, and more workers are being added to the market, implying we are not yet at the end of this cycle," said Jordan Rochester, currency strategist with Nomura, who has called for a BoE rate hike as soon as August.
"Overall, though, so far the economy has held up well 'despite Brexit', and this is why a removal of 'emergency stimulus' should not be regarded as entirely implausible."
Against that is the political uncertainty in a week that saw the British government publish legislation it needs to sever the UK's political, financial and legal ties to the EU.
The government also fleshed out its negotiating stance with the EU, publishing three position papers saying Britain would quit nuclear body Euratom and leave the jurisdiction of the European Court of Justice.
"On the whole, I think caution is certainly warranted -political uncertainty persists if anything," said Credit Agricole's Valentin Marinov.
"(The BoE) is a supportive factor for the pound but in the big scheme of things it's not a game changer ... We believe the better strategy is to sell the rally in any of the pound crosses."
Reporting by Ritvik Carvalho; Editing by Andrew Heavens and Hugh Lawson