Sterling hit a two-month high versus the dollar and rallied versus the euro on Friday after stronger-than-expected British growth figures dimmed expectations of an imminent interest rate cut from the Bank of England.
The Office of National Statistics' first estimate showed the economy grew at an annual rate of 3.3 percent in the third quarter, up from 3.1 percent the previous quarter and the fastest rate in more than three years. The economy expanded by 0.8 percent on the quarter, slightly above the 0.7 percent forecast in a Reuters poll of economists. Weaker-than-expected inflation data and recent turmoil in the credit markets had led to expectations the Bank of England might cut interest rates.
However, strong GDP data indicates that the economy appears to be weathering the recent choppy markets, decreasing the pressure for the BoE to cut interest rates. "It's been a strong week of data and particularly the GDP number has shown that growth is stronger than expected," said Tom Levinson, currency strategist at ING.
"At the start of the week, many people were looking for a rate cut in November, but these expectations have been all-but-dashed, which is positive for sterling." A Reuters poll earlier this week gave a median 30 percent chance of a rate cut as soon as next month.
At 1412 GMT, the pound was up 0.2 percent versus the dollar at $2.0486, having touched its highest level since late July. The euro was down 0.4 percent at 69.63 pence.