LONDON - Sterling rose against both the dollar and euro on Wednesday, helped by a weaker dollar, while inflation data showed UK prices picked up in December.
Consumer prices rose 0.6% year-on-year in December, after a 0.3% increase the month before, helped by a temporary easing of COVID-19 travel restrictions and a rise in global oil prices.
The pound rose against the dollar, helped by U.S. Treasury Secretary nominee Janet Yellen's urging lawmakers to "act big" on spending and worry about debt later - an instruction which saw the dollar fall against most major currencies.
At 0910 GMT, the pound was up 0.5% at $1.3698. Versus the euro, it was up around 0.5% at 88.53 pence per euro, having hit its strongest since May 2020.
Inflation has been below the Bank of England's 2% target since mid-2019 and the COVID-19 pandemic pushed it close to zero as the economy tanked.
"Despite the subdued rate of inflation and current economic difficulties linked to the ongoing pandemic restrictions, we do not expect the BoE to step up its monetary stimulus at its upcoming 4 February monetary policy meeting," Kallum Pickering, senior economist at Berenberg, said in a note to clients.
"The already planned 150bn pounds of additional asset purchases for 2021, alongside the positive economic outlook from spring onwards, should return inflation to the BoE’s 2% target by early 2022," he said.
As the UK's COVID-19 death toll approached 100,000, analysts are watching vaccination data to assess how long the UK's current strict lockdown measures will be in place.
Currently the United Kingdom has vaccinated 4.27 million people with a first dose of the vaccine, among the best in the world per head of population.
"Further progress in vaccinations (a pick-up in the daily rate) by the time the BoE MPC meeting takes place on 4th February may prove enough to hold off on any additional monetary easing," wrote Derek Halpenny, head of research for global markets at MUFG.
(Reporting by Elizabeth Howcroft, editing by Larry King) ((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))