Sterling at fresh 16-week high as dollar takes a beating

LONDON, Dec 1 (Reuters) - Sterling rose to a near 16-week high against a broadly-soft dollar on Thursday, with currency traders looking past gloomy British manufacturing data for now.

The pound was last up 0.8% against the dollar at $1.2157, its highest level since Aug. 12, breaching the previous high of $1.2153 touched on Nov. 24.

Sterling was also 0.6% higher versus the euro at 85.865 pence per euro.

"There is not a great deal happening domestically, it's a very dollar-focused week, particularly after Powell's comments yesterday," said Adam Cole, head of FX strategy at RBC Capital Markets.

The dollar fell more than 1.5% to a three-month low against the yen on Thursday after U.S. Federal Reserve Chair Jerome Powell said U.S. rate hikes could be scaled back "as soon as December".

The pound has recovered ground from lows hit in September in the aftermath of then-Prime Minister Liz Truss' mini-budget.

Despite the uptick in recent months, the pound remains 10.3% lower on the year and traders are still focused on Britain's gloomy economic outlook.

Data on Thursday meanwhile showed British manufacturing activity falling for a fourth month in a row in November as businesses faced the weakest overseas demand in 2-1/2 years, leading to job cuts and reduced confidence about the year ahead.

"Our longer term outlook for sterling is still negative and that is driven by the imbalances and the need for capital inflows, and all the reasons that have been there for some time," said Cole.

Inflation in the UK is still running at a four-decade high as households grapple with a cost-of-living crisis. Meanwhile the Bank of England (BoE) has been hiking interest rates since late 2021, tasked with bringing inflation back to its 2% target.

Money markets are fully pricing in a 50-basis-point rate hike at the BoE's Dec. 15 meeting.

(Reporting by Lucy Raitano; editing by Dhara Ranasinghe and Mark Heinrich)