Sterling rose for a third straight day against the euro on Wednesday, buoyed by more signs that Britain's economy is on a sustainable footing driven by rising business investment and exports. But it fell against the dollar as investors flocked to safe-haven assets and more liquid currencies driven by geopolitical tensions.
Russia upped the ante on Wednesday and ordered an urgent drill to test the combat readiness of the armed forces across western Russia amid tension with the West over Ukraine. The euro was down 0.2 percent against the pound at 82.20 pence, slipping from around 82.47 pence before the second estimate of UK gross domestic product (GDP) data was released.
Against the dollar, sterling was down 0.15 percent at $1.6655. It had briefly jumped to a day's high above $1.67 after the GDP data, before giving up those gains. Britain's fourth-quarter GDP growth was unchanged from the official estimate at 0.7 percent quarter-on-quarter, although it was revised slightly down on a year-on-year basis. Nevertheless, the details of the report showed that consumer spending and a turnaround in the housing market had been the main drivers behind Britain's growth.
"The overall feeling from the report is positive and again it keeps the overall momentum intact and pointing towards a stronger pound," said Nawaz Ali, UK market analyst with Western Union. Sterling was the best performing major currency of the second half of 2013 and it has extended that run this year, based on speculation that an improving economy may prompt the Bank of England to raise interest rates early in 2015. Sterling overnight interbank money market rates indicate the chances of a rate hike have been rising in recent days, and on Wednesday implied the chance of a rise in 15 months' time.
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