Sterling pulled away from one-month highs versus the dollar on Tuesday as investors sold it against the euro to meet month-end requirements, and bets that the UK economic recovery would remain uneven also weighed. Analysts expect a soft reading from manufacturing purchasing managers surveys due on Wednesday. A negative surprise could push sterling lower as markets scale back the chance of an interest rate rise in the near term.
Sterling was last at $1.6471 against the dollar, having earlier reached a near one-month high of $1.6547. Traders cited stops above $1.6550 with near-term resistance at $1.6575, the high struck on May 4. The euro rose as high as 87.48 pence, with traders citing a eurozone central bank as a sizeable buyer of the euro/sterling pair during the session apparently to meet month-end requirements. "Over the last couple of weeks sterling has held up surprisingly well to unfavourable moves in rate expectations so we are playing a bit of catch-up," said Paul Robson, senior currency strategist at RBS Global Banking.
"It's the end of the month so people might have to do some rebalancing and data in the UK continues to be a bit soggy while it is looking better elsewhere (in Europe)." The dollar fell 0.5 percent against a basket of currencies. It remained under pressure after data released on Tuesday confirmed a weakening economic trend as both US consumer confidence and the Chicago business barometer dropped more than expected.
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