London - Sterling rose to an eight-month high against a basket of currencies on Friday on the view that a strengthening British economy will mean interest rates rising earlier than the central bank has flagged.
The pound's trade-weighted index rose to 82.7, its highest since mid-January, as the UK currency stayed near multi-month highs against the dollar and the euro.
Sterling was at $1.5812 versus the dollar, close to a more than seven-month peak of $1.5840 hit on Thursday.
“The uptrend for sterling still seems in place. There is no reason to expect that to change just yet,” said Richard Wiltshire, chief FX broker at ETX Capital.
“Short-term momentum is still bullish and I wouldn't be surprised to see a test of $1.60 before too long.” But trimming of positions before the weekend could mean the pound struggles to sustain gains above $1.5850 in the short term, he said.
Adding to the picture of a stronger economy, second-tier data on Friday showed UK construction output rose by 2.2 percent in July from June, with signs of more expansion to come as new orders jumped in the second quarter.
The pound held steady against the dollar, which was broadly firmer against most other currencies on a report that US President Barack Obama could name former Treasury Secretary Lawrence Summers as the next chairman of the Federal Reserve.
Some in the market believe this could lead the Fed to adopt a more hawkish stance.
The US central bank is expected to announce next week it will start scaling back monetary stimulus.
The pound gained after Bank of England Governor Mark Carney said on Thursday the British economy was gaining momentum. He was interpreted by investors as making no attempt to temper the recent rise in short-term interest rates.
The market is currently pricing in the risk of a rate hike as soon as late 2014.
The pound firmed slightly against the euro, which was down 0.1 percent at 84.08 pence.
Earlier this week, the euro dropped to 83.83 pence, its lowest since late January.
Analysts at Goldman Sachs revised up their sterling forecasts and now see euro/sterling at 82 pence and sterling/dollar at $1.68 in three months' time.
“The UK has experienced a substantial improvement in activity indicators in recent months ... This economic strength will likely support capital inflows, which will offset some of the external vulnerability linked to the relatively large current account deficit,” they said in a note to clients. - Reuters