Sterling rose to a six-week high against the Euro on Wednesday after data showed the UK economy expanded faster than initially estimated in the second quarter, strengthening expectations that the Bank of England could raise interest rates by the end of the year.
The Pound climbed 0.4% to $1.3292, its highest level in a week, recovering from a three-month low hit in the previous session. Against the Euro, Sterling reached its strongest level since mid-August, with the single currency down almost 0.3% at 85.43 pence.
UK economic output grew 0.5% between April and June, slightly above the initial 0.4% estimate.
Economists polled by Reuters news agency had expected the previous estimate to remain unchanged.
Markets are pricing in around 33 basis points of monetary tightening from the Bank of England by the end of this year and more than 100 basis points by the end of 2027, according to LSEG data.
Furthermore, the Pound also gained against the Dollar after comments from prominent Federal Reserve policymaker John Williams, who said there was “no need for urgency” to raise interest rates.
The remarks shifted market expectations towards a December rate hike rather than an October move, according to CME Group’s FedWatch Tool.
Dollar strength has weighed on Sterling this month, erasing its quarterly gains. The Pound is on track for its biggest monthly decline in nearly a year and is heading for a broadly flat performance in Q3.
Against the Euro, however, Sterling was on track for modest gains over both the month and quarter, largely reflecting weakness in the single currency as investors priced in a more dovish European Central Bank stance compared with the Bank of England.
LSEG data showed markets were pricing in around 90 basis points of rate hikes from the ECB by the end of the year, Reuters reports.
UK markets are heading into a crucial month as Prime Minister Andy Burnham’s new government prepares to present its budget.
Burnham said on Tuesday that Britain should consider different options for its future ties with the European Union, including the possibility of rejoining the bloc in the longer term.