LONDON (Reuters) - Sterling made further gains against the dollar on Friday and was set for its best week in eight after Britain agreed a Brexit transition deal and investors got some clarity over a possible interest rate hike in May.
The British currency added 0.4 percent to trade at $1.4151, bringing week to date gains to 1.49 percent.
The pound climbed on Friday as the dollar sold off on fears of a global trade war, which investors say could also hurt sterling in the medium-term given the UK’s trade deficit.
“The repricing story for sterling is all done and all the cards have now fallen in place for the short term, but any trade war outbreak will be a significant headwind,” said Viraj Patel, an FX strategist at ING in London.
U.S. President Donald Trump signed a memorandum on Thursday that will target up to $60 billion of Chinese products with tariffs, but only after a 30-day consultation period that starts once a list of goods is published.
The pound will be caught in the crossfire of any global trade war, since Britain has a large deficit for which it needs capital inflows.
Britain on Monday agreed with the European Union on a 21-month transition period following its exit from the bloc next year, reducing the likelihood of a “cliff-edge” Brexit that many investors have feared.
Better-than-expected wages data also boosted the pound this week.
The Bank of England kept interest rates steady on Thursday but two policymakers voted to raise them, reinforcing the view among economists that borrowing costs will rise in May for only the second time since the 2008 financial crisis.
But some investors turned cautious after the BoE repeated that rate rises would remain gradual and sterling pulled back from the month’s highs hit earlier on Thursday of $1.4220.
Against the euro, sterling weakened before recovering to trade flat at 87.265 pence per euro.
Reporting by Saikat Chaterjee; Editing by Catherine Evans
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