Sterling edged up against the dollar on Wednesday, extending the previous day's strong gains after data showed Britain's services sector expanded faster than expected in January, pointing to robust economic growth. The UK Services Purchasing Managers' Index (PMI) reading of 57.2 topped all forecasts in a Reuters poll and suggested the economy is growing at a rate slightly above the 0.5 percent it managed in the final three months of 2014.
Earlier in the week, PMI surveys from the manufacturing and construction sectors also showed better-than-expected growth. After posting its biggest one-day rise in nine months on Tuesday as the dollar fell broadly, sterling inched up 0.1 percent to trade at $1.5185, from $1.5163 before the survey's release.
That still left the pound 20 cents lower than in July, since when investors have pushed back their expectations of when the Bank of England will start hiking interest rates. "Certainly the disappointing run of UK data over the last couple of months has really pushed out rate expectations. So there is room for upside surprises (for sterling)," said Alvin Tan, a currency strategist at Societe Generale.
Against the euro, the pound hit an intraday high of 75.38 pence after the data, leaving it up 0.4 percent on the day. "We still think sterling is punching below its weight as the UK should remain a positive growth story this year, and the BoE is likely to be second only to the Fed (US Federal Reserve) in eventually tightening its policy stance," wrote analysts from BNP Paribas in a research note.