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Sterling Rallies for 6th Straight Session on UK Growth Data

LONDON, July 13 (Reuters) - The pound rose for the sixth session running to a new 15-month high on Thursday after data showed the British economy shrank by less than expected in May.

Figures showed the economy contracted 0.1% in May, after growth of 0.2% the previous month. Economists expected a contraction of 0.3%.

Sterling rose to $1.3061, its highest since April 2022, and was last up 0.51% to $1.3057.

The euro slipped 0.19% against the pound to 85.54 pence, not far off the 11-month low of 85.05 pence touched on Tuesday.

"The UK -- as well as most of Europe -- defied widespread expectations, including ours, that it would fall into recession over winter," said Kallum Pickering, senior economist at Berenberg, in emailed comments.

Britain's currency has been on a tear against the dollar in recent days as investors have wagered that the Bank of England will have to keep raising interest rates while the U.S. Federal Reserve is close to stopping.

Expectations of higher interest rates in a country tend to boost its bond yields, making them look more attractive and boost the domestic currency.

The pound rallied 0.45% on Wednesday as the dollar plunged in the wake of data which showed that U.S. inflation rose 3% year-on-year in June, the smallest increase since March 2021.

Data on Tuesday showed that British wages rose at the joint highest rate on record in the three months to May, keeping the pressure on the BoE.

The dollar index was down 0.23% on Thursday to 100.38, after dropping 1.07% on Wednesday.

Plenty of market analysts think the pound may have further to rise, despite the lacklustre performance of the British economy.

Deutsche Bank strategists on Wednesday said they expect the dollar to continue to fall and predict that sterling will rise to $1.33 by the second quarter of 2024.

"Many investors will now be targeting a move to $1.33," said Chris Turner, head of markets at ING, in emailed comments.

Yet he also said: "In some ways, sterling has already enjoyed its re-rating on the very hawkish BoE and thus may not outperform in this current dollar bear phase."

Geoff Yu, market strategist at lender BNY Mellon, said bets against sterling would be misplaced, citing his bank's data which shows that asset manager clients are hedging against a fall in the pound.

Counterintuitively, when enough market players are pessimistic about an asset, it can more easily jump higher on the back of a small increase, as people unwind their bets or hedges.

"I don't like sterling... but this is seriously deterring me from having a bang-the-table view," Yu said.

Reporting by Harry Robertson; Editing by Kim Coghill

Source: Reuters

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