Sterling enjoyed some respite Tuesday after British economic growth showed no change in the fourth quarter in spite of market expectations of a fall, but the currency remained around its lowest levels for this year amid uncertainty over Britain's future trade relationship with the European Union.
Preliminary data for the fourth-quarter gross domestic product showed the economy rose 1.1% year-on-year, the same as in the previous quarter. Economists polled by Reuters had forecast an 0.8% increase.
The data came as re-assurance to investors that the Bank of England was unlikely to pursue a looser monetary policy. At it previous meeting, the BoE signaled it was more interested in seeing if growth picks up after the December election.
"Few expected fireworks from a report that focuses on the final months of election and Brexit uncertainty," said Karim Yousfi, chief global strategist at Audacity Capital.
"So this is more a case of not good, but good enough. With a clear majority of the Bank of England’s interest rate-setting grandees already reluctant to cut rates, this GDP print will give them no impetus to cut any time soon. For this reason the pound is pepping up against both the dollar and the euro," Yousfi said.
Investors brushed off data on Britain's manufacturing output, which fell 2.5% year-on-year in December, compared with a 2% fall in previous month.
Sterling was last trading up 0.1% at $1.2927, still close to the 2-1/2-month low of $1.2873 it fell to on Monday, mostly on the back of a strong dollar. Against the euro, the pound also rose 0.1% to 84.43 pence.
"Overall the muddy waters in the data pool is unlikely to change market positioning and longtime sterling strength will rely on BoE expectations and trade developments," said Sam Cooper, vice president of market risk solutions at Silicon Valley Bank.
The British government has demanded the EU sign up to an agreement which will ensure the City of London can maintain access to the European financial market after Brexit.
Analysts say that Britain is likely to struggle to secure an unprecedented "permanent equivalence" deal for its financial services. (Reuters)