Sterling rallied to within sight of 15-month highs against the euro on Friday after stronger than forecast economic growth data hardened expectations of a UK rate rise next month.
Preliminary Q3 GDP rose 0.7 percent on the quarter and 2.8 percent on the year, its fastest annual pace in two years and above forecasts of 0.6 and 2.7 percent. All 46 economists polled by Reuters after the data expected the Bank of England to raise rates by 25 basis points to 5 percent next month, and median forecasts showed a 40 percent chance of rates at 5.25 percent in 2007.
"The GDP was on the strong side but sterling is looking toppish here," said Adrian Schmidt, currency strategist at RBS Financial Markets. Sterling rose to two-week highs of $1.8860 and was trading at $1.8815 at 1410 GMT, up 0.2 percent from the US close. The pound has risen more than 1.5 percent against the dollar this week and is on course for its biggest weekly gain since early August.
It hit three-week highs of 66.90 pence per euro, before easing to 67, a gain of a third of a percent on the day. A move beyond 66.82 pence would take the pound to its highest since July 2005. Sterling also hit three-week highs on the Bank of England's trade-weighted index, at 103.4.
Sterling rose earlier this week after minutes of the Bank of England's latest policy meeting showed two Monetary Policy Committee members voted for a rate rise, against the majority vote for steady rates. But the pound lost ground on Thursday after data showing a surprise drop in retail sales in September. No major date are due on Monday. In merger news on Friday, India's Tata Steel Ltd won approval from Anglo-Dutch firm Corus Group for its 4.3 billion pound take-over bid.
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