Page last updated at 15:35 GMT, Wednesday, 3 June 2009 16:35 UK

Pound falls from seven-month high

5, 10 and 20 note

The pound hit its highest level against the dollar in seven months before falling back as the greenback gained ground against a range of currencies.

One pound was worth $1.6664 in morning trading but by mid-afternoon it had fallen to $1.6375.

The dollar recovered after Asian monetary officials said they would keep buying US Treasuries even if the US credit rating were cut.

Earlier, the pound had gained on hopes the UK recession may be easing.

Sterling was also stronger against the euro and reached a seven-month high against the Japanese yen of 160.47 before falling back.

Confidence rising

A range of data on Wednesday indicated the UK recession could be abating and prospects improving.

The purchasing managers' index (PMI) for the UK services sector rose to 51.7 in May from 48.7 the month before. A reading over 50 indicates expansion rather than contraction.

The firm that compiles the PMI indexes, Markit, said its all-sector PMI reading, which combines those from the construction, services and manufacturing, rose to 50.4 in May. This is the first time it has been above 50 since March 2008.

Separately, a Nationwide survey showed UK consumer confidence reached its highest in six months, with people more confident about the outlook for the economy.

We think the [sterling] rally is overextended
Geoff Kendrick, UBS

And a KPMG survey indicated that the pace of contraction in employment had eased in May.

"Sterling has accelerated to the upside over the course of the last few days," said BNP Paribas currency strategist Ian Stannard.

But he added that it was not so much a UK story, as a "global liquidity story, and as long as risk appetite continues to hold up, sterling will continue to benefit as a cyclical currency".

During the height of the financial crisis, the dollar was boosted by a flight to safety, as investors fled other currencies.

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