January 12, 2018 / 10:41 AM / a year ago

Caution grows after sterling climbs to four-month high

UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic

LONDON (Reuters) - Sterling rose more than half a percent to hit a four-month high against the dollar on Friday as investors dumped the greenback against a range of peers following strong euro gains but the pound lost ground against the single currency.

A swathe of weak data this week including a widening trade deficit and lacklustre Christmas trading results from top British retailers including Tesco has left investors wary about the longer term outlook.

“Sterling is benefiting from the dollar weakness and the growing euro strength rather any pound-specific factors which if anything have been underwhelming this week,” said Alvin Tan, an FX strategist at Societe Generale in London.

The British currency rose for the second consecutive day to $1.3620 in early London trading, its highest in four months.

But it fell 0.3 percent against the euro as signs of progress towards a new German government and rising expectations that the European Central Bank will start unwinding its policy stimulus triggered a broad round of euro buying.

Despite sterling’s bounce this week, UK economic data has been a headwind for the currency, with data showing Britain’s trade balance for November at its widest in five months.

While investors have warmed up to the bullish sterling theme against the dollar in recent weeks on expectations renewed of weakness in the U.S. currency, sterling bets against the euro have been far more cautious.

Net long bets on sterling are already near their highest levels in more than three years, according to data released by the U.S. Commodity Futures Trading Commission on Friday.

Editing by Catherine Evans

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