Sterling rises as easing chances fade, susceptible to UK data

LONDON: Sterling extended gains on Thursday after market expectation for looser policy from the Bank of England was pushed back as the Britain's finance minister did not change the central bank's remit as drastically as some had anticipated.

Minutes from the latest BoE policy meeting, showing less support for further asset purchases, with some monetary policy committee members voicing concerns about the weak currency, also lifted the pound as investors who had bet against it were forced to cover their short positions.

Sterling however, remained vulnerable to public finance and retail sales data due at 0930 GMT, as the recent spate of gloomy British data had spurred fears of the economy tipping into a triple-dip recession.

The pound was up 0.2 percent on the day against the dollar at $1.5133, not far from the two-week high of $1.5187 hit on Wednesday. Reported option expiries at $1.5100 and $1.5200 could keep the currency pinned to these levels.

"I think we could be in for a short period where sterling/dollar would remain elevated as we could see some short sterling/dollar positions unwind," said Michael Sneyd, FX strategist at BNP Paribas.

Retail sales figures for February are forecast to show an improvement from the previous month. Although this could help push sterling a bit higher, strategists said the currency could face resistance above the $1.5200 level as most investors are still keen to sell the pound on rallies.

"Today's retail sales will be a focus, our UK proprietary data team sees risk for an upside surprise, $1.5200 level remains decent resistance which has held since the start of March," analysts at Lloyds said in a note.

Strategists said although finance minister George Osborne kept the BoE's inflation target at 2 percent, his updated remit for the central bank was supportive of unconventional policy measures in the future.

But the BoE minutes, which some were expecting to show a closer vote than the 6-3 outcome, revealed concerns that further quantitative easing would lead to more sterling weakness and add to inflationary pressures.

The euro was down 0.5 percent against sterling at 85.20 pence, holding within sight of a five-week low of 85.055 pence struck on Tuesday on concerns the financial crisis in Cyprus could impact the broader euro zone.