Sterling rose against the dollar on Monday, lifted by gains in the euro on data showing the risk of higher inflation in the euro zone, while investors brushed off concerns about political unrest in Egypt. The pound rode the coattails of the euro, which rallied after data showing a higher-than-expected jump in January inflation further fuelled speculation for higher eurozone interest rates.
Expectations of higher inflation have also been brewing in the UK. Writing in a UK newspaper, Bank of England policymaker Martin Weale said a small rise in interest rates would now cost less in the long run than higher ingrained inflation. Still, he added that an increase in rates would not be needed should recent economic weakness lead to a sustained downturn. Currencies seen to be higher risk, including the euro and sterling, brushed off intensifying public protests against Egyptian President Hosni Mubarak, which threaten to shake political stability in other parts of northern Africa and the Middle East.
By 1510 GMT, sterling had climbed more than half a percent on the day to a session high of $1.5965. Traders said demand for sterling ahead of the BoE's final daily fix pushed the currency higher in late London trade. Earlier in the day, market participants said demand from Asian sovereigns and US names were helping to boost the pound, but analysts said the currency may struggle to climb above a resistance level around $1.6060, a high hit in December. The euro was little changed at 85.80 pence, relinquishing earlier gains as traders said a UK bank was selling the single currency.
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