LONDON, July 6 Reuters Sterling rose to a two week high against the euro on Thursday, after a survey from the Bank of England BoE showed British companies39; expectations for selling price inflation had cooled.

The BoE39;s Decision Maker Panel showed expectations for output price inflation in the coming year fell to 5.3 in the three months to June, compared to 5.4 in the three months to May the lowest reading since March 2022.

But bets that the BoE interest rate will now peak at 6.5 in February capped sterling39;s gains, with traders weighing whether the British currency will be hurt by rate increases that could put more strain on the economy.

The BoE is watching economic indicators closely as it considers how many more rate hikes are needed to control inflation.

In an interview with the BBC broadcast on Thursday, BoE Governor Andrew Bailey said the BoE has to set the interest rate to get UK inflation all the way down to 2.

Markets remain highly sensitive to any incoming developments on the price side and the still quite aggressive BoE tightening expectations, said Francesco Pesole, FX strategist at ING.

Expectations for more rate hikes are rising. On Wednesday, money markets were pricing in that BoE rates would peak in March 2024, reaching 6.28.

A month ago, the expectation was for a maximum of about 5.3 by the end of this year, with the first cut a few months later.

The pound was up 0.4 against the dollar to 1.2754 by 1023 GMT, marching towards a 14month high…