Sterling rebounded after worse-than-expected trade data in the United States on Friday, which also helped it recover from an eight-week low against the euro reached earlier in the session. But analysts said the reprieve would likely be only temporary as the market lost interest in relatively high UK interest rates that have been supporting the pound. The US trade gap widened to $58.3 billion in January, more than expected, sparking a sharp slide in the dollar.
HSBC chief currency strategist Mark Austin said sterling's spike against the greenback was purely driven by the dollar's reaction to the trade deficit, which is likely to keep widening.
"The trade numbers were significantly worse than expected," he said. "The reaction is simply a dollar one."
The pound jumped from $1.9211 just before the figures were released at 1330 GMT as high as $1.9293, before easing back to trade around $1.9265 at 1515 GMT. Sterling hit this year's high of $1.9325 on Tuesday. Sterling touched an eight-week low of 69.96 pence per euro earlier on Friday but regained ground after the trade data, pushing as high as 69.67 pence. It was at 69.82 pence at 1515 GMT.
Austin said the euro was expected to gain at the expense of the pound as the lustre wore off currencies buoyed by relatively high interest rates.