Sterling eases amid resilient growth and surging prices

Sterling drifted lower against the dollar on Thursday as data showing resilient British business activity in March failed to prop up the currency for which traders are now anticipating a slower pace of monetary tightening by the Bank of England.

By contrast, buoyant U.S. job data fuelled speculation the Federal Reserve would raise interest rates by half a percentage point at its next policy meeting in May, giving the greenback a boost.

At 1600 GMT, sterling was 0.16% lower against the dollar at $1.3186 and 0.22% down versus the euro at 83.47 pence after hitting a two-week high against the common currency on Wednesday..

Britain‘s private sector reported the steepest rise in prices charged by companies since at least 1999 while the S&P Global/CIPS composite Purchasing Managers’ Index (PMI), a gauge of economic growth, edged down just slightly to 59.7 from a historically high 59.9 in February.

Data showed a similar picture for the euro zone with business growth stronger than expected as prices rose at a record pace.

“I would be wary of buying into the better headline aggressively”, commented Jeremy Stretch, head of G10 FX strategy at CIBC, noting that there were still a lot of uncertainties as to how inflation would cut into the disposable income of British consumers.

British finance minister Rishi Sunak cut fuel duty and softened some of a looming payroll tax increase on Wednesday as he sought to alleviate a severe cost-of-living squeeze against the backdrop of slowing economic growth.

But with inflation set to hit a 40-year high of nearly 9% later this year, government forecasters said Britons faced the biggest hit to their living standards since records began in the late 1950s – even after Sunaks measures.

The Bank of England hiked its interest rate by 25 basis points on Thursday but signalled a possible slower pace of tightening.