Sterling gained against the dollar and euro on Tuesday as stock markets and oil prices recovered, providing some relief to investors worried by a slew of external and domestic risks to the British economy. The pound rose half a percent to $1.4324, leaving it around 2-1/2 cents clear of last week's low of $1.4080. It was also 0.7 percent up against the euro at 75.635 pence.
Worries over global growth, the risks of Britain leaving the European Union and the prospect of near-zero UK interest rates until well into 2017 weighed on the pound enough last week to send it to a seven-year low versus the dollar and a one-year trough against the euro. But as jittery investors' nerves appeared to calm on Tuesday, with hopes for a deal to tackle a huge oversupply of oil pushing crude prices higher, the past six weeks' sell-off in sterling eased.
Societe Generale currency strategist Alvin Tan said "Brexit" risks - Britain leaving the EU - had already been largely priced into sterling, and they should not cause it to fall much further until there were new political developments on the issue. "The fall in sterling, which started in December, was definitely overdone, against both the dollar and euro," he said. "I would expect sterling to move between $1.40 and $1.45 over the next month."
Bank of England Governor Mark Carney said on Tuesday that the conditions for an interest rate rise were not yet in place, reiterating his comments last week suggesting the central bank was some way off raising interest rates. Markets have already pushed their bets on a rate hike well into next year. Citi strategist Josh O'Byrne pointed to the first release of fourth quarter growth data on Thursday as a possible driver for the pound. "With downside risks at least partly discounted, the bigger shock from data this week would probably be with strength," he said.