Sterling rose on Monday from a one-month low against the dollar after Federal Reserve Chair Jerome Powell declined to meaningfully harden his tone on inflation, renewing bets of less-aggressive U.S. monetary tightening.

Despite last week's very strong U.S. employment numbers, in a question-and-answer session before the Economic Club of Washington on Tuesday, Powell reiterated he felt a process of "disinflation" was underway.

"The stronger pound this morning is largely a spillover from the improved risk environment overnight, which was driven by Chair Powell’s more conservative stance on rates in light of Friday’s payrolls report," said Simon Harvey, head of FX Analysis at Monex Europe.

Harvey added that the magnitude of the pound’s rally was largely due to its underperformance on Tuesday, "so there is a bit of a catch up effect taking place".

Sterling was up 0.34% to $1.2091 against the dollar after hitting its lowest level since Jan. 6 on Tuesday of $1.1961.

It rose to a six-day high against the euro, up 0.16% to 88.89 pence, after falling last week to a four-month low versus the single currency.


Traders will be waiting for economic growth numbers due on Friday for clues on what the Bank of England's (BoE) next move will be. The central bank last week raised borrowing costs for the 10th time to 4%, but hinted it was close to ending its run of rate hikes.

Money markets are currently pricing in a peak in BoE interest rates of 4.25% by the summer amid signs inflation is easing.

Britain's labour market showed some signs of cooling in January with starting pay for people hired for permanent roles growing at its slowest pace in almost two years, according to a survey of recruitment firms published on Wednesday.

BoE Governor Andrew Bailey, who will speak on Thursday to lawmakers about the central bank's decision to raise rates to a 14-year high, said last week that labour market data would be key for understanding how quickly inflation falls.

(Reporting by Joice Alves; Editing by Sharon Singleton)