Sterling held firm versus the dollar and the euro on Wednesday as slightly better than expected British economic growth data confirmed expectations of a Bank of England interest rate hike next month. Gross domestic product rose 0.7 percent on the quarter, versus a consensus for a 0.6 percent rise.
The annual rate came in at 2.8 percent, in line with expectations. The data was seen as further proof that the economy is strong enough to withstand at least one more rate hike from an inflation-wary BoE. Expectations of such moves have helped send sterling past the $2 mark to 26-year highs.
"Our forecast is for sterling to remain around the $2 level for the next three months," said Paul Robinson, currency strategist at Barclays Capital. "(GDP data was) close to trend, fairly strong but not massively stronger than consensus. We expect the MPC to increase interest rates at the next meeting in May by 25 basis point, but we see that as the peak," he added. By 1410 GMT, the pound was slightly higher on the day at $2.0041, within sight of last week's 26-year peak at $2.0133. Versus the euro, it was little changed on the day at 68.11 pence.
British businesses are not fazed by the pound breaching the $2 level, but a much stronger rise in the currency could hurt in the longer run, Miles Templeman, Director General of the Institute of Directors told Reuters.
Short sterling futures have fully priced in a 25 basis point hike to 5.5 percent by end-June and show an around 80 percent chance of rates rising once more year-end. Thursday features the publication of Nationwide's British house prices data for April and a speech by the Bank of England's Paul Tucker.