LONDON: Sterling rose to a seven-year high against the euro on Monday, after climbing in the past week to its highest in more than six years against the basket of currencies measuring its broader strength.
Although the pound has been weak against the dollar since last July, it has gained steadily against the European currencies in which it does most of its trade. In the past month it has also bounced 3 percent higher against China's yuan.
That all seems broadly the product of a steadying of expectations - after they were pushed back by more than a year - for the Bank of England to deliver an interest rate hike early in 2016.
That and the resulting higher yields on UK government bonds links sterling to the dollar as one of only a handful of major currencies able to offer investors some easy return on their money.
"The pound generally has started this year on a stronger footing, helped by signs that the economy is set to do better in the months to come," said Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi UTJ in London.
"The CBI numbers this morning pointed to some weakness on the retail side, but I think that rightly has been ignored by the market given the prospects for consumer spending on the back of lower oil prices."
Sterling gained almost 0.8 percent against the euro to hit 73.295 pence per euro, its strongest since the start of 2008. It also rose 0.4 percent to $1.5465.
Markets have already been overwhelmingly wrong about UK rates in the past year: less than a year ago the consensus was for a first rate hike in November of 2014.
A research report on Monday from a UK online retail stockbroker, Share Centre, calculated that the strength of the pound had knocked $2.7 billion off the sales of British companies reporting annual results in the fourth quarter.
But with all major banks still calling for more losses for the euro, the pound looks to many like a good bet to follow the dollar higher this week if testimony by Federal Reserve chief Janet Yellen affirms expectations of a U.S. rate rise in the middle of this year.
Before that, Bank of England officials including Governor Mark Carney are due to be cross-examined by British MPs in parliament on Tuesday.
"The dollar is range-struck against the yen but a hawkish Yellen testimony would take it higher and sterling against the yen is a decent way to trade this, buying at 183.40 with a stop at 181.50 and a target of 190," Societe Generale strategist Kit Juckes said.
The pound traded at 183.26 yen, steady on the day.
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