Sterling firm vs dollar

LONDON: Sterling rose on Tuesday, supported by an improvement in risk appetite, but traders were cautious about more gains on expectations that data may underline UK's fragile fiscal condition and a key policymaker could strike a more dovish tone.

The pound underperformed the euro with the single currency bolstered by expectations that the euro zone would cobble togather measures to rescue Greece from a default.

The euro was last up 0.2 percent at 88.47 pence with near term support at its 55-day moving average at 88.10 pence.

Sterling was up 0.2 percent at $1.6240, rising past buy-stops above $1.6235, and hovering near option expiries at $1.6230. Analysts said the June 17 high of $1.6200 was acting as a near term support for sterling while stops are said to be layered above $1.6260/65.

Some traders said sterling could fall towards the $1.62 level if Bank of England policymaker Paul Fisher reiterates a more dovish bias. He is due to speak later in the session.

Earlier this month he said that if UK data continue to deteriorate more monetary stimulus could be considered.

"More dovish than expected comments from Fisher and worse than expected UK public sector finance figures could see cable drop towards $1.6200," a London based spot trader said.

UK releases public sector finance data for May at 0830 GMT and the numbers could reflect the challenges the government faces in meeting its debt reduction targets due to a subdued economic outlook.

"Sterling specific drivers could add to the headwinds for GBP in coming days," said Valentin Marinov, currency strategist at City.

"In particular, indications that the UK fiscal imbalances deteriorated further in May could erode sterling sentiment some more."

UK CBI industrial trends survey is also due to be released on Tuesday and is likely to show that the orders balance has deteriorated slightly in June, giving more signs that Britain's economic recovery maybe running out of steam.

All of which, analysts say back the view that downside risks to growth are building and outweigh near term risks to inflation and may erode sterling's rate advantage some more in coming days.

Copyright Reuters, 2011