The pound was broadly steady against the dollar and edged up versus the euro on Friday, little moved by better-than-expected economic data but still on track for its biggest weekly gain versus the dollar since the first week of June.
British PMI data beat all forecasts in a Reuters poll of economists and shot up to 57.1 in July from 47.7 in June, indicating activity began to grow again after collapsing during the lockdown which began in March.
But the data had limited market impact, as quickening growth does not mean a return to normal levels.
"I’m very cautious in reading these figures because even if they stayed at these elevated levels for a protracted period of time, it will take until next spring to get back to where we were in terms of output levels," said George Buckley, chief European economist at Nomura.
He said the reaction in sterling might have been limited because market participants were pricing in a substantial range for error.
Retail sales recovered to almost pre-lockdown levels in June and a survey measuring employers' confidence in hiring and investing also rose, turning positive for the first time since February.
British Prime Minister Boris Johnson said he thought Britain would be through the coronavirus crisis by mid-2021 but feared there may be a second spike that could overwhelm the health service
The pound held broadly steady at $1.2746.
It is still on track for its best week against the dollar since early June, helped by bullish markets at the start of the week turning optimistic over a potential coronavirus vaccine and the European Union's agreement on a massive fiscal stimulus plan for the bloc.
Sterling strengthened versus the euro as the single currency eased some of its recent gains. Euro-sterling was at 90.89 pence per euro at 1114 GMT, with the pound up around 0.2% on the day .
"In the past week, sterling has been somewhat caught in the middle between an appreciating euro and a depreciating dollar," UBS strategist Gaétan Peroux wrote in a note to clients.
"As attention moves from the EU Recovery Fund possibly toward the ongoing Brexit talks we see potential for sterling to rally on positive sentiment around those discussions," he said.
Britain and the European Union clashed on Thursday over the chances of securing a free trade agreement, with Brussels deeming it "unlikely" but London holding out hope one could be reached in September. (Reuters)