Sterling rose to an almost three-year high against the dollar on Thursday on growing expectations that robust economic data will lead the Bank of England to raise interest rates sooner than previously flagged.
The pound rose as high as $1.6635 in late afternoon trade, its highest level since mid-August 2011. It marked the fifth straight day of gains for the pound against the dollar and left the currency's trade-weighted index around its highest since the 2008 financial crisis.
A sharp drop in the British jobless rate to 7.1 percent on Wednesday along with recent data that has shown a sustained pick-up in consumer demand has firmed up forecasts that the BoE will be the first major central bank to raise rates, even possibly before the end of the year.
The greenback fell to a one-week low against the euro and Swiss franc. It also fell sharply against the yen, following a weak Chinese manufacturing number. Soft factory data from China sent Asian stocks lower, losses that persisted in Europe and Wall Street and boosted demand for the safe-haven yen.
The Australian dollar, meanwhile to its lowest since July 2010. It was last at US$0.8754, down 1.1 percent.
"With the market of the view that the European Central Bank is going to be conservative when it comes to monetary policy easing, strong manufacturing data just pushes further back the possibility of any unconventional policy, which tends to lift the euro," said Shahab Jalinoos, currency strategist at UBS in Stamford, Connecticut.
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