By Olga Cotaga
LONDON (Reuters) - Sterling strengthened slightly on Thursday as traders unwound short positions after recent economic data which some analysts said justified last month's Bank of England decision not to cut interest rates.
Growth in the UK showed no change in the fourth quarter on Tuesday, despite market expectations that it would be slower, and on Thursday a closely watched survey showed house prices rose at their fastest pace in nearly three years.
The pound was trading up 0.1% at $1.2967 , just above the 2020 low of $1.2873 it hit on Monday.
Reuters analysts saw the currency pair gaining as other major currencies fell and noted recent sterling shorts unwinding on Thursday.
Against the euro, sterling rose to a two-month high of 83.80 pence (EURGBP=D3), mostly due to a weaker euro, before reversing some of those gains and trading down 0.1% at 84 pence.
Some analysts forecast troubled times ahead for the pound as the UK embarks on a lengthy and complex negotiation with the remaining 27 European Union countries.
"The subjects are diverse, the positions far opposed and time in short supply. So anyone hoping that sterling could be out of the woods might be bitterly disappointed," said Antje Praefcke, an analyst at Commerzbank (DE:CBKG), adding she expects higher sterling volatility once negotiations officially start in March
Prime Minister Boris Johnson will reshape his government on Thursday, appointing a team he hopes will deliver his vision for Britain beyond its exit from the EU and heal divisions both in his Conservative Party and the country.