The pound slipped off a six-week high against the dollar on Thursday, with investors displaying caution following several sessions of gains for the currency.
Having earlier in the day hit its highest level against the dollar since the middle of December, the pound was recently trading down 0.4 per cent at $1.2576.
Data on Thursday morning showing that the UK economy beat expectations by expanding 0.6 per cent in the final quarter of 2016 cheered some investors, but caution still appears to dominate markets, especially ahead of Prime Minister Theresa May's meeting with US President Donald Trump scheduled for Friday.
The pound has endured a turbulent ride over the last year and despite some relief in January, it remains around 15 per cent weaker against the dollar than where it was when the UK voted to leave the European Union in June.
Economists have also warned that volatility in the currency is unlikely to end any time soon. Some see sterling slumping as low as $1.16 by autumn before cautiously recovering as clarity emerges on Brexit and what it will mean for the UK economy.
Unicredit analysts on Thursday said that despite the recent rebound, they deem it too early to turn bullish on the pound.
“In our view, this picture still points to further volatility rather than a much clearer upward trend for [the pound against the dollar] over the coming months,” they said.
The fourth quarter growth figure means that the UK was likely the strongest growing economy in the G7 last year. But most forecasters - including the Bank of England and the Office for Budget Responsibility - still expect the economy to slow down significantly in 2017 due to a combination of higher inflation hitting consumer spending and also weaker business investment owing to uncertainty over Brexit.
