Sterling extends rally on firm rate-hike bets, subdued dollar

Aug 21 (Reuters) – The British pound was on track for its fourth consecutive ‌weekly gain on Friday, helped by a feeble dollar and recent economic momentum that has kept rate-hike bets alive.Sterling was last up 0.19% to $1.3658, hovering ​near its highest since February. Against the euro , the British ​currency was flat at 85.66 pence.A disconnect between economists’ ⁠expectations and market pricing has complicated the outlook for sterling. Economists polled ​by Reuters expect the central bank to keep borrowing costs unchanged this ​year, while traders are still pricing in at least one increase in 2026, according to data compiled by LSEG.The mismatch could put the pound’s gains to ​the test, even as some investors point to recent inflation and GDP ​data as evidence that the BoE may need to raise rates, a move that ‌would ⁠typically support the currency.”I think that inflation running relatively too high for comfort gives the BoE some room for hikes this year. And then there’s a reasonably strong chance for additional hikes through ​2027 if, in ​fact, inflation ⁠doesn’t come down,” said Brock Weimer, analyst, investment strategy at Edward Jones.The pound was also helped by weakness ​in the dollar, which fell on concerns that the ​U.S. ⁠Treasury’s efforts to calm the bond markets might end up undermining confidence in the currency.Separately, British retail sales in July fell as expected after ⁠a surge ​in June, according to official figures ​released on Friday.Another set of data also showed that Britain’s government recorded an unexpected budget ​deficit last month.Reporting by Niket Nishant in Bengaluru; Editing by Alex Richardson