Sterling edged higher against the euro on Friday after robust economic data, while investors assessed the impact of a potential leadership change in the country.
Britain's economy grew by a much stronger-than-expected 0.9% in November, finally taking it above its size just before the country went into its first COVID-19 lockdown.
The pound had recently been immune to political noise while being supported by expectations of rate hikes by the Bank of England this year.
It rose 0.2% to $1.3737 against a weakening dollar, within striking distance of its highest level since November 4 touched on Thursday at $1.3749.
The U.S. dollar fell for a fourth consecutive day on Friday to its lowest in more than two months as investors took the view that most of the recent hawkishness from the U.S. central bank has already been priced in.
Sterling was up 0.1% versus the euro at 83.49 pence, not far from its highest level versus the single currency since February 2020 hit on Tuesday.
UK data “suggests the UK economy might have had a little insulation heading into the Covid-restricted December period,” ING analysts said.
“A 25bp BoE rate hike is still priced with an 80% probability for the February 3rd meeting - which will likely keep GBP supported over the coming weeks," they added.
Prime Minister Boris Johnson is facing the gravest crisis of his premiership after revelations about a series of gatherings in Downing Street during COVID-19 lockdowns.
According to Berenberg economist Holger Schmieding, "a conservative successor (of Johnson), for instance, Chancellor Rishi Sunak or Foreign Secretary Lizz Truss, would likely pursue roughly similar policies but in a much less erratic fashion.”
“A calmer approach could benefit UK markets and domestic business investment,” he said.
But, “to bolster his chances to stay in office, Johnson may be tempted to take a particularly hard line against the European Union, for instance on Northern Ireland or fisheries,” he added.
(Reporting by Stefano Rebaudo; Editing by Kim Coghill) ((Stefano.Rebaudo@thomsonreuters.com; +390266129431))