Sterling rises against weakening dollar as traders focus on Fed/Trump

By Joice Alves

LONDON (Reuters) -Sterling edged up against a weakening dollar on Thursday as traders continued to worry about threats to the U.S. central bank's independence.

The pound was 0.17% higher on the day at $1.3502, and set for a 2.4% monthly rise against the dollar in September. The U.S. currency has been under pressure from President Donald Trump's ramped-up campaign to exert more influence at the Federal Reserve.

Fed Governor Lisa Cook asked a U.S. judge to issue a temporary order declaring that Trump's effort to fire her is unlawful and to bar the Fed from taking steps to remove her.

Sterling has also had some support by a pullback in expectations of rate cuts by the Bank of England and buoyant economic data.

Money markets expected the BoE to keep rates unchanged at 4% when it meets in September.

BoE Monetary Policy Committee member Catherine Mann said on Tuesday that she saw a strong case to keep the Bank Rate on hold for a prolonged period but stood ready to cut rates forcefully if downside risks to growth materialise.

"Since the beginning of the year, the pound has tended to move sideways against the G10 currency average, while the U.S. dollar has depreciated significantly," said Michael Pfister, FX analyst at Commerzbank, mentioning concerns about the independence of the Fed as bad news for the dollar.

Commerzbank has changed positioning around sterling saying in a note on Thursday that the risks of a weaker pound are increasing amid a difficult upcoming autumn budget, persistent UK inflation and cooled-down labour market.

"The latest data makes it clear that the United Kingdom is in a difficult situation, and our previously rather optimistic view of the pound is probably no longer justified," Pfister said.

British producer output price inflation rose to a two-year high of 1.9% in June, up from 1.3% in May, according to preliminary official data released on Wednesday, which adds to signs of inflationary pressures facing the British economy.

Earlier this month the BoE revised up its near-term inflation forecast to 4% for September and forecast that inflation would not be back at its 2% target until the second quarter of 2027.

Against the euro, sterling was 0.2% higher at 86.40 pence.

(Reporting by Joice Alves; Editing by Sharon Singleton)