U.K. Data Lift Sterling

The British pound was rallying against the greenback Wednesday as traders signaled that strong economic data from the U.K. continue to give it a yield advantage over its U.S. counterpart.

One pound would fetch $2.0726, up from $2.0683 late Tuesday. The CurrencyShares British Pound Sterling Trust(FXB Quote), which tracks the value of the pound, was gaining 0.2% in recent market action.

Earlier, currency traders learned that U.K. house prices rose 1.1% in September and 9.8% compared with the same period a year ago. Also impacting the action was the revelation that the Bank of England may be more hawkish on inflation than previously thought.

"What's been coming to the fore is the realization that there is no universal view at the Bank of England that British interest rates will be cut," explains Naomi Fink, senior currency strategist at BNP Paribas in New York.

But traders are fully expecting the Federal Reserve Open Market Committee to cut its benchmark interest rate when it publishes its policy statement at 2:15 p.m. EDT. So, the likely increase in the difference between yields from holding dollars vs. pounds would widen, hence making pounds more attractive than the U.S. currency.

Meanwhile, the Commerce Department provided some good news for the dollar, saying its first reading of U.S. economic growth for the third quarter showed a gain of 3.9%, ahead of forecasts and up from 3.8% in the second quarter. However, that was slightly offset by a disappointing report on Midwestern manufacturing a bit later.