LONDON: Sterling rose on Monday, trading close to a near three-week high against the dollar as it remained buoyed by a string of recent firmer UK data and last week's below-forecast US jobs numbers.
Consistently strong British data has led investors to expect that UK interest rates will rise well before the Bank of England has flagged, possibly as early as late 2014, boosting the pound.
The pound was also higher against the euro and analysts expected it to gain further, though for now solid chart support kept the single currency above the 7-1/2 month low it struck on Friday.
The pound was up 0.2 percent against the dollar at $1.5664, staying near a peak of $1.5681 hit on Friday, its strongest since Aug. 21.
More gains would see it target the August peak of $1.5718, marking its strongest in nearly three months, but traders cited offers to sell the pound at $1.5680 and more at $1.5700.
The euro was down 0.2 percent at 84.14 pence, staying above chart support at the psychological 84 pence mark and Friday's trough of 83.92 pence.
Analysts and traders said a lack of major UK data releases may limit sterling gains at the start of the week, but a strong UK labour market report on Wednesday could propel it higher.
"Clearly the underlying story for the UK is much better ... ultimately the purchasing managers' indices are pointing towards a substantial uptick," said Jeremy Stretch head of currency strategy at CIBC.
He said this could lift the pound towards 83.50/60 pence per euro, although its scope for gains against the dollar would be limited due to the prospect of the US Federal Reserve scaling back monetary easing soon.
Weaker US jobs data raised the chances that the US Federal Reserve might decide against scaling back monetary easing later this month, or migh reduce it by a smaller amount than the market expects.
However, comments by two Federal Reserve officials suggested stimulus unwinding was still on track.
"Sterling has room for further near-term gains, but we are approaching the $1.5740 level where we would look to sell," analysts at Morgan Stanley said in a note to clients.
Britain's finance minister, George Osborne, is expected to say on Monday that Britain is "turning a corner" and that an accelerating economy vindicates his austerity programme.
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