February 15, 2018 / 10:04 AM / 9 months ago

Sterling gains as dollar extends sell-off

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Feb 15 (Reuters) - Sterling rose against the dollar on Thursday, cementing gains on the back of a broadly weakened dollar, with traders eyeing earnings data next week to give the pound fresh momentum.

After a strong start to the year on the back of growing expectations that the Bank of England will raise rates faster than previously thought, and optimism Britain can secure itself more favourable terms from the European Union when it leaves next year, sterling has stumbled in recent weeks.

Renewed concern about whether it can agree a transition deal with the EU have overshadowed more hawkish comments from the BoE about the need for rate rises sooner and to a little bit more of an extent that it flagged last year.

A BoE survey published on Wednesday that showed British workers in line for their biggest pay rises since 2008 could also fuel policymaker concerns over inflationary pressures.

Markets are pricing in around a 70 percent chance of a rate hike as soon as May.

But it was the falling dollar that gave sterling its lift on Thursday. The greenback tumbled as worries over twin deficits in the United States mounted amid a government spending splurge and large corporate tax cuts.

The pound gained 0.5 percent to trade at $1.4072 and its best level since Feb. 5.

Against the euro, the pound was up 0.2 percent to 88.79 pence per euro.

“This is largely a dollar story today,” said Jane Foley, London-based FX strategist at Rabobank.

Foley said we would need “to see very strong earnings data” next week to push sterling, in the absence of further dollar weakness, much higher and back towards the $1.4346 it hit in January, its highest level since the vote to leave the European Union in June 2016.

Analysts at ING said the period leading up to the late March EU leaders’ summit would be noisy for sterling but the pound’s “relative resilience is telling of a different Brexit trading environment to what we saw in 2017”. (Reporting by Tommy Wilkes; Editing by Alison Williams)

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