LONDON Sterling edged down against the dollar on Wednesday but stayed close to the seven-week high it had hit the previous day, as investors awaited testimony from the head of the Bank of England for clues on whether interest rates may be cut again.
The pound has gained more than 5 percent against the dollar since hitting a three-decade low in July, boosted by data that has beat the gloomy forecasts for the economy in the months following Britain's vote to leave the European Union, and by the political backdrop having stabilised somewhat.
It surged by around 1 percent on Tuesday to hit $1.3445, its highest since mid-July, after weak U.S. data fed doubt that the Federal Reserve will raise U.S. interest rates at all this year.
The Bank of England cut interest rates to a record low near zero early last month and launched an asset-purchase programme, after the initial figures incorporating the aftermath of the shock vote to leave the EU suggested Britain may be heading for a near-term recession.
But a run of upbeat data has seen investors take a more optimistic view of the British economy, and has called into question the view that the BoE will cut rates again this year. Morgan Stanley economists raised their British growth forecasts on Monday and delayed their call on the next tranche of asset purchases to February 2017.
BoE Governor Mark Carney will at 1315 GMT have to answer questions from parliamentarians about whether the central bank overreacted in its monetary easing last month, and will be watched for clues on possible further action.
"I don't think they're going to close the door at this stage to further policy measures," said Rabobank currency strategist Jane Foley. "Whilst the data has been encouraging, I don't think the Bank will want to limit their options at this stage."
A majority of economists in Reuters poll published on Tuesday reckoned the BoE will hold fire in September but will cut rates by a further 15 basis points at its Novemenber meeting.
Sterling was down 0.3 percent by 0800 GMT at $1.3405, close to Tuesday's seven-week high. Against the euro it slipped 0.2 percent to 83.88 pence, having hit a five-week peak of 83.335 pence per euro on Tuesday.
"Sterling has been the best performing G10 currency in recent weeks as better than expected UK data and abating Brexit fears triggered an aggressive squeeze of the extensive market shorts," wrote Credit Agricole strategists in a note to clients.
"After overshooting on the downside in the immediate aftermath of Brexit, the sterling crosses got ahead of themselves on the rebound and are starting to look vulnerable to a renewed pull-back."