By Joice Alves
LONDON (Reuters) - Sterling reversed earlier losses to rise versus the dollar and euro on Thursday after data showed U.S. consumer prices climbed, while the European Central Bank maintained an elevated flow of stimulus as expected.
After touching in early London trading its lowest level in one month at $1.4074, sterling rose 0.3% to $1.4155 versus the dollar at 1445 GMT.
Versus the euro, the pound was 0.3% higher at 86.00 pence, after it touched a 10-day low of 86.42 pence against the single currency.
As economies rebound from lockdowns, U.S. consumer prices rose 5% year on year, marking the biggest annual increase since August 2008, while the ECB raised its growth and inflation projections for 2021 and 2022.
The optimism in overall global growth typically encourages investors to bet on risky assets like sterling.
"We're seeing real rates drive nominal U.S. yields lower this afternoon, which is beginning to boost risk-on sentiment seen across markets as a whole," said Simon Harvey, senior FX market analyst at Monex.
Some analysts also suggested both the Federal Reserve and the ECB are not seen tightening their policy soon.
"The U.S. CPI figure, while strong, was probably not strong enough to force the Fed to change its stance," said Stuart Cole, head macro economist at Equiti Capital.
"And the ECB meeting has again reaffirmed the maintenance of a faster pace of emergency bond-buying."
Sterling was falling this week after Britain and the European Union failed to agree on solutions to post-Brexit trade problems in Northern Ireland.
The UK and EU exchanged threats on Wednesday in a standoff that could cloud a weekend international summit hosted by Britain.
European Commission Vice President Maros Sefcovic said on Wednesday that the EU was considering advancing its legal challenge to Britain over UK action in Northern Ireland, which could result in a court case by autumn or the eventual imposition of tariffs and quotas.
Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets, said that the rising number of COVID cases was also adding pressure on the pound this week, as it could delay further steps to fully reopen the British economy.