LONDON (Reuters) – Sterling rose on Monday, largely boosted by a softer dollar, which pushed the pound back up to levels seen before the Bank of England (BoE) delivered its biggest interest rate hike in three decades last week.

At 1000 GMT, the pound was up 0.61% against the dollar at $1.14405, and 0.35% higher versus the euro at 87.260 pence per euro.

The pound moved up as the dollar shed 0.522% by 1000 GMT, having earlier ticked up after China said it would stick with a strict COVID-19 containment strategy; news that initially saw investors flee to the safe-haven dollar.

“The market seems to have rather easily shrugged off the weekend denials from China that zero-covid may soon be over, and continued with the momentum from last week, with the dollar softening as a result of increased bets (misplaced, in my view), that the Fed will soon pivot to a more dovish stance,” Michael Brown, head of market intelligence at Caxton, said.

The pound is trading roughly where it was in the run-up to Thursday’s decision by the Bank of England to raise its benchmark interest rate by 75 bps as it battles to bring down double-digit inflation. But analysts remain gloomy about the prospects for the currency given the economic outlook.

The BoE’s decision saw the pound fall as much as 2% and came with a warning that Britain is facing the risk of its longest recession in at least a century, but the central bank also said that borrowing costs may not rise as sharply as some expect.

“The combination of a highly concerning economic outlook and a forced dovish repricing in rate expectations look set to keep the pound rather unattractive,” ING analysts wrote in a note.

British house prices fell in October at the fastest monthly rate since February 2021, a fresh sign of weakness in the housing market that reflects the fallout from the September “mini-budget”, mortgage lender Halifax said on Monday.

Former prime minister Liz Truss’s budget plan sent the UK gilt market into turmoil in late September, revealing vulnerabilities in some pension funds and other asset managers which were forced into quick-fire sales to raise cash for collateral amid the plunging value of bonds.

Speaking on Monday, BoE executive director Sarah Breeden said improving transparency in “non-banks” is a first step to applying lessons from last month’s turmoil in Britain’s government bond market, but more will need to be done.

British finance minister Jeremy Hunt will deliver his planned fiscal statement on Nov. 17, with indications there will be a squeeze on public spending and potentially higher taxes.

Quarterly GDP growth figures on Friday will also provide an important signal for the state of the UK economy.

(Reporting by Lucy Raitano; Editing by Andrew Heavens)