LONDON: Sterling traded in tight ranges on Tuesday, with further signs of economic recovery doing little to alter the view that the Bank of England will soon need to tweak its policy message - to the detriment of the currency.
The pound took a hit on Monday from speculation the BoE, which begins a two-day meeting on Wednesday, could break with standard practice and issue a statement on Thursday to push back market expectations of when it might first raise interest rates.
Such a move - which most analysts say remains unlikely this week - would reflect concern that the economy, while doing better than much of Europe, is still not ready to cope with higher rates.
The pound's failure to break out past support for the dollar around $1.66 has also helped halt gains from late last year.
"It's just got much harder to drive the pound higher," said Kathleen Brooks, research director at Forex.com. "$1.66 was always going to be a very difficult level to get above."
Sterling was last up less than 0.1 percent at $1.6388. It lost less than the same amount to the euro at 83.10 pence.
London analysts say much of the positive economic news has been priced in to sterling, leading to a tough start to the year.
Partly due to the huge amount of cash in the banking system, euro zone money market rates look anchored over the next 18 months, while sterling rates price in a chance of an official rate rise at the start of 2015.
"The strong performers last year are really the ones who are suffering this year, and weaker ones are clawing back some losses," said Brooks. "We've seen sterling and the euro come off and on the other side the Aussie, which was under pressure, has done quite well."
Talk of some extraordinary comment by the BoE on Thursday may be overblown. While the BoE has already tried to ease concerns that it may raise rates too soon for an uncertain recovery, it would be unusual for it to issue a statement on Thursday.
When it did so last July, there had been a rapid rise in British government bond yields associated with U.S. Federal Reserve policy, while 10-year gilt yields have risen less than 10 basis points in the last month.
"Absent decisive evidence that the latest tightening in monetary conditions is hampering UK growth, investors may continue to bet on early removal of monetary stimulus," Citibank analysts said in a morning note.
"This could keep sterling's rate advantage in place for now. GBP remains buy on dips with shorts in EURGBP the better way to express that view."
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