LONDON (Reuters) - Sterling rose versus the dollar on Wednesday despite data showing a sharp slowdown in British construction activity, as an escalation in the U.S.-China trade dispute hit demand for the U.S. currency.
Since Britain signed a transition agreement last month for exiting the European Union, concerns about Brexit have abated as investors focus on the state of the UK economy before an expected interest rate rise in May.
Data showed construction sector activity last month was at its weakest since just after the 2016 Brexit vote. Unusually cold weather was blamed for the slowdown.
“The market shrugged off the data... construction is only a small part of the economy,” Jane Foley, a senior FX strategist at Rabobank in London, said.
With the dollar selling off in afternoon trading, sterling held on to some of its gains, rising 0.2 percent to $1.4081 at 1550 GMT.
The pound fell 0.1 percent versus the euro to 87.31 pence amid a broader rally in the euro.
Analysts said risk aversion caused by China’s retaliation against U.S tariffs drove currency markets on Wednesday.
“Today was not a pound story... continued trade tensions between China and the U.S. put the dollar under broad-based pressure,” said Kamal Sharma, director of G10 FX strategy for Europe at Bank of America Merrill Lynch.
Sharma said he remained constructive on the pound and saw reasons for it to rally, including the currency’s strong historical performance in April.
Banks are split over whether sterling can continue its winning streak this year against most major currencies.
Some investors remain sceptical about the odds of the Bank of England tightening policy because of lingering economic uncertainties and say dollar weakness is keeping sterling above $1.40.
Other investors expect the central bank to raise interest rates next month and possibly again before the end of the year as it unwinds a massive stimulus programme.
Foley said that weak inflation or earnings data due to be published in mid-April remained a risk that could pull the pound lower.
Reporting by Tom Finn; Editing by David Stamp
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