February 15, 2018 / 10:10 AM / 8 days ago

Sterling builds on gains as dollar extends sell-off

LONDON (Reuters) - Sterling gained for the fourth day on the trot against the dollar on Thursday, briefly touching $1.41 on the back of a broadly weakened U.S. currency, with traders eyeing earnings data next week to give the pound fresh momentum.

The pound has rallied in 2018 on the back of optimism Britain could secure itself a transition deal for when it leaves the European Union next year and better than expected economic performance.

Expectations the Bank of England will need to hike interest rates more than previously expected were also confirmed by the central bank’s governor Mark Carney last week.

A bounce in the dollar since early February has crimped sterling’s run, but the pound found its feet again on Thursday as investors sold the U.S. currency.

A BoE survey published on Wednesday that showed British workers were in line for their biggest pay rises since 2008 also reinforced the view that the central bank could face growing inflationary pressures that it will need to address by raising interest rates more than expected.

The pound gained as much as 0.7 percent to trade at a day’s high of $1.4100, its best level since Feb. 5, and stood at $1.4063 at 1520 GMT.

Against the euro, the pound was up 0.2 percent to 88.66 pence per euro.

“There’s obviously the [weaker] dollar story here. For sterling to move much higher we would have to see very strong earnings data,” next week, said Jane Foley, London-based FX strategist at Rabobank.

Sterling in January touched $1.4346, its highest level since the vote to leave the European Union in June 2016.

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

Commerzbank said the market was failing to price adequately the risk of Brexit-related problems into the pound, such as the failure to secure a transition deal by the end of March.

“The currency market currently sees only minor risks for significant sterling weakness,” analysts at Commerzbank said, explaining that they believed both Britain and the EU could let the March deadline slip. “We believe it is possible that, in this case, the Pound may experience a temporary episode of weakness.”

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

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

Reporting by Tommy Wilkes; Editing by Alison Williams and Jon Boyle

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