Sterling rose broadly on Wednesday, hitting its highest level in over a week against the dollar as global equities rebounded and risk aversion ebbed, boosting currencies perceived to be higher risk. The pound briefly pared some gains against the dollar following news that the US economy contracted by a bigger-than-expected 6.1 percent in the first quarter, but the reaction was short-lived.
Investors took some encouragement from comments from Christina Romer, a top adviser to President Barack Obama, that there was a "silver lining" and that "less dreary" US GDP numbers were ahead.
Sterling meanwhile remained supported by Tuesday's surprisingly upbeat UK retail sales survey, which fanned hopes that the UK economy may be over the worst of the recession.
"Yesterday and overnight we saw a pick-up in stocks on the back of better-than-expected consumer confidence data from the US and receding fears about the flu outbreak, which has helped sterling," Dublin-based AIB Group Treasury economist Geraldine Concagh said. At 1449 GMT, sterling rose 1 percent against the dollar to $1.4765, not far off an earlier session high of $1.4794, its highest level since April 20.
Against the Japanese yen - which, along with the dollar, is the main currency to benefit when investors are seeking safe havens in times of heightened risk aversion - sterling jumped around 1.6 percent to 143.20 yen. It also edged up against the euro, which dipped 0.1 percent to 89.75 pence.
Comments from UK Finance Minister Alistair Darling before the UK parliament's Treasury Committee had little impact on the pound.
Darling said the question of the Bank of England doing more quantitative easing had not arisen yet, and noted that he is still seeing a healthy appetite for UK gilts. But with no other major news expected out of the UK, the market's focus will now turn to the US Federal Reserve policy meeting at 1815 GMT.
Although interest rates are fully expected to be left unchanged, any comments on the economic outlook or decisions to tweak the current US quantitative easing policy could have an impact on the dollar, analysts said.
For the time being, however, sterling remains driven by the market's appetite for taking on risk. "The underlying driver continues to be risk appetite," Rabobank strategist Jeremy Stretch said. "Currently the market is more encouraged about risk, and that has helped sterling somewhat against the dollar."
Sterling came under pressure earlier this week when markets' aversion to risk was heightened by concerns over swine flu and reports that Bank of America and Citigroup may need to raise more capital on the basis of stress tests for US banks.
But US banking concerns have been put aside for now as investors wait for Monday's release of the stress test results, while they also feel that the swine flu risks have been factored into currency markets for now, analysts said.