Sterling hit a one-month high against the dollar on Friday on expectations UK interest rates could rise in coming months due to sticky inflation, a view bolstered by higher-than-expected producer prices. The pound also gained ground against the euro despite brewing speculation that the European Central Bank may need to raise rates sooner than previously expected.
Traders said the Bank of England was still likely to move before the ECB in tightening policy and that helped sterling outperform. Sterling was up 0.26 percent on the day to $1.5876, having hit a one-month high of $1.5886 earlier in the session. Option barriers are said to be lurking at $1.59.
The euro lost 0.14 percent to 84.22 pence, having risen to a session high of 84.99 pence. It failed to hold above its 55-day moving average, which came in at 84.96 on Friday. Escalating rate rise expectations and steady purchases by Asian central banks have pushed the pound nearly 2 percent higher versus the dollar this week. The UK currency is poised to end the week above its 100-week moving average at $1.5635, which would open the door to more gains. Data on Friday showed wholesale price risks are increasing due to rising oil and food prices. UK output prices rose 4.2 percent on the year in December, the fastest rise since August and exceeding expectations for a 3.9 percent increase.
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