Sterling hovered close to a four-month high versus a struggling euro on Tuesday as sovereign funding worries plagued the single currency and the increasing prospect of higher interest rates in the UK supported the pound. The euro remained on the back foot with the focus on whether Portugal will be able to raise funds in the debt market on Wednesday or be forced to turn to the European Union and IMF for financial aid. Bond auctions in Spain and Italy will also be closely scrutinised this week.
Sterling traded around 83.01 pence per euro in afternoon dealing after holding within a tight range throughout the day, but it was not far off a four-month high of 82.85 hit on Monday when the euro came under broad selling pressure. The BoE is expected to keep rates unchanged at this week's policy meeting, but Citi recently changed its call to expect two rate rises this year, with Societe General bringing their expectation for a first rate hike forward to August. Sterling sat tight against the dollar to $1.5555, towards the top end of a $1.5345/1.5680 range set from the end of December.
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