Sterling rose strongly against the dollar on Friday on the back of a narrower than expected UK current account deficit, which helped offset concerns over currency strength raised by the Bank of England.
Sterling shot half a cent higher on the dollar in the immediate wake of news the fourth quarter current account deficit narrowed to 5.228 billion pounds from a downwardly revised third quarter shortfall of 6.28 billion.
It built on those gains to rise nearly one percent on the day to $1.8236 and remained buoyant after Bank of England Monetary Policy Committee member Stephen Nickell said policy should take more account of sterling if it remained strong.
"The current account data came out with a much narrower deficit than the market was expecting. That did help sterling out quite a bit today," said David Mann, currency strategist at Standard Chartered.
At 1500 GMT, the pound traded two-thirds of a percent higher on the day at $1.8186, two cents above one-week lows near $1.7987 hit on Thursday.
The pound traded a third of a percent higher against the euro at 66.86 pence.
The pound lost about 2-1/2 cents versus the greenback on Thursday on comments from BoE Governor Mervyn King, who said the prospect of more balanced growth was not helped by sterling's rise and that the strengthening currency was making life difficult for UK exporters.
In sterling's favour, King also said on Thursday that consumer borrowing and spending have been rising faster than expected, which helped underpin expectations the BoE had more rate rises to come after hiking twice since November.
"We are more likely to be seeing higher rates than the market expects right now," said Mann.
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