Sterling rose to a nine-day high on Wednesday, trading above $1.40, as some investors trimmed large bets against the currency in the absence of fresh clues from polls on whether Britain is likely to leave the European Union. The pound also rose more than 1 percent against the euro, which came under pressure on expectations that the European Central Bank is likely to ease policy aggressively next week to boost falling prices and growth.
"There is a short covering rally going on which is pushing up the pound," said a trader. "No bad news on the 'Brexit' front is also offering it much relief."
Sterling was up 0.75 percent at $1.4056, and up nearly 1.7 percent from a 7-year low of $1.3836 struck on February 29. It was up 1 percent at 77.15 pence per euro, recovering from a 14-month low of 79.28 pence hit on February 25.
Earlier, a weaker than expected reading of construction industry sentiment added to a blow from weak numbers on manufacturing a day earlier and weighed on the pound.
The construction purchasing managers index showed growth in the sector fell to a 10-month low in February in what was its weakest reading in almost three years.
While Britain's economy continues to outpace many of its European peers, investors have become convinced it will not be strong enough any time soon to justify a rise in interest rates.
Rather, the pound has also been hit hard since the formal launch just over a week ago of Britain's referendum campaign over whether to remain in the European Union. Most analysts and traders remain wary and say the rally in the currency would not go far given the uncertainty from the referendum.
While some polls show those wanting to leave the union are gaining ground, the bookmakers are expecting only a one-in-three chance of Britain exiting the European Union.
"I won't be getting bullish on the pound any time soon," said Kit Juckes, a strategist with Societe Generale.
"A catalyst for the next leg lower in sterling against the dollar is absent at the moment. But I'm not sure the EU referendum debate is getting less toxic, and I'm certain the outcome is as unclear as it could be."
Investors worry a "Brexit", as well as further pushing back UK rate hike expectations, would threaten the huge foreign investment flows Britain needs to balance its current account deficit, one of the biggest in the developed world at around 4 percent of output.
A poll published on Wednesday showed more than half of ordinary Britons are worried an "Out" vote will weaken the pound, with 43 percent saying it will be an important factor in how they vote in June.
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