LONDON (Reuters) – Sterling recovered previous losses and rallied Thursday against the dollar and euro after data showed that US consumer prices rose while the European Central Bank supported a boost in stimulus flow, as expected.
After touching a one-month low of $ 1.4074 in early London trading, the pound sterling rose 0.3% to $ 1.4155 against the dollar at 14.45 GMT.
Against the euro, the pound rose 0.3% to 86.00p after hitting a 10-day low of 86.42p against the single currency.
As the economy recovers from the lockdown, U.S. consumer prices rose 5% year-on-year, the largest annual growth since August 2008, while the ECB raised its growth and inflation forecasts for 2021 and 2022.
Optimism about overall global growth usually prompts investors to bet on risky assets like the pound sterling.
“This afternoon we are seeing real rates pushing down on nominal yields in the US, which is starting to reinforce the risk sentiment seen in all markets as a whole,” said Simon Harvey, senior foreign exchange analyst at Monex.
Some analysts have also suggested that both the Federal Reserve and the ECB are not going to tighten their policies anytime soon.
“The US CPI reading, although strong, was probably not strong enough to force the Fed to change its position,” said Stuart Cole, chief macroeconomist at Equiti Capital.
“And the ECB meeting once again confirmed the continued high rates of emergency bond purchases.”
Sterling fell this week after the UK and the European Union were unable to agree on solutions to trade problems in Northern Ireland after the UK left the EU.
Britain and the EU exchanged threats on Wednesday in a standoff that could overshadow an international weekend summit hosted by the UK.
European Commission Vice President Maros Sefkovic said on Wednesday that the EU is considering filing a UK lawsuit over UK actions in Northern Ireland that could lead to litigation by the fall or the possible imposition of tariffs and quotas.
Jeremy Stretch, head of G10 monetary strategy at CIBC Capital Markets, said the growing number of COVID cases is also weighing on the pound this week as it could delay further steps to fully reopen the UK economy.
(Reporting by Joyce Alves; Editing by Toby Chopra and Mark Heinrich)