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Pound lifted by rate hike expectations; dollar sags

Chung Sung-Jun - Getty Images

Sterling rallied against the dollar on Thursday after new measures to cool the UK housing market failed to dampen rate rise expectations and a downward revision to U.S. GDP continued to weigh on the greenback.

The Bank of England tightened lending norms to the housing sector but its measures were less aggressive than many in the market had anticipated. That kept expectations for an interest rate rise as soon as by the end of this year intact.

The British pound rallied to a day's high against the dollar of $1.7036 after the BoE released its Financial Stability Report—not far off a six-year high of $1.7064 touched last week— from around $1.7010 beforehand.

The dollar index languished near one-month lows in the wake of data, on Wednesday, showing a sharp contraction in U.S. gross domestic product in the first quarter, which suggested the Federal Reserve would be in no hurry to raise interest rates.

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Economists, however, say the U.S. economy has since improved and the market will be looking for signs of that in personal consumption data.

The price index for personal consumption expenditures, watched by the Federal Reserve, is expected to have reached its highest since late 2012 in May.

The dollar index was at 80.21, having fallen to as low as 80.091 on Wednesday, a low not seen since May 22. The dollar could get a boost if Thursday's data shows consumption ticking up along with prices in May.

The euro hit a day's low against the pound to near 80 pence as BoE Governor Mark Carney said the latest macro prudential norms to cool the housing sector would not change the outlook for monetary policy.

Against the dollar, the euro slipped to $1.36. The dollar fell 0.2 percent against the yen to 102 yen .