Sterling recovered from a one-month trough against the euro on Thursday, drawing support from rising house prices in Britain that supported a view that consumer demand was holding up well. The Royal Institution of Chartered Surveyors said its monthly house price balance rose to +44 in July from +40 in June, the highest since July 2014 and a bigger rise than most economists polled by Reuters had expected.
But it lost ground against the dollar after robust retail sales data out of the US put a bid tone to the dollar. Markets are expecting an interest rate hike in September with chances of such a move currently at 48 percent, traders said. Some of those expectations were tempered after China devalued its currency earlier this week and reported weak economic data that sparked fears about global growth and disinflation.
Against the dollar, sterling was 0.2 percent down at $1.5580 , while the euro was down 0.4 percent at 71.15 pence , having hit a one-month high of 71.709 on Wednesday when the single currency benefited from an unwinding of bets placed against it. "Greece-related risks have abated, Europe's economy is seen on an upward trajectory and the UK is edging towards rate hikes - some of these are offsetting drivers, yet together these contribute to an increasingly widespread view that this currency pair is unlikely to deliver further drama," said Richard de Meo, director at Foenix Partner, a company which offers hedging solutions to companies.
Sterling had lost ground on Wednesday after data showed British wage growth slow more than expected in June, taking some pressure off the Bank of England to raise interest rates. A Reuters poll released on Thursday showed economists still expect the BoE to raise rates early next year, but conviction was wavering. Minutes from the BoE's latest monetary policy committee meeting published last week showed just one policymaker voted for an immediate increase in interest rates, defying speculation that at least two MPC members would vote for a hike.