Sterling hit a two-and-a-half-month high against the dollar on Tuesday, boosted by month-end rebalancing requirements and slightly better risk appetite, with the pound also able to gain against the euro. But analysts warned the likelihood of more UK monetary easing may slow the pound in coming weeks, especially after weak UK lending data on Tuesday.
Sterling rose to $1.5797, its strongest since November 18, before easing back to $1.5770 in afternoon trade, up around 0.4 percent for the day. "I think today's moves have been about month-end fixing, there's generally a weaker dollar theme and I wouldn't really read too much into it," said Ankita Dudani, currency strategist at RBS. Traders said a robust performance in equity markets in January meant portfolio managers would need to adjust their dollar hedges and sterling was benefiting along with other major currencies.
Offers were reported into the $1.5800 area with stop-losses lurking above, while next resistance was at the November 18 high of $1.5888. The euro fell 0.7 percent on the day to trade at 83.00 pence, having earlier hit a high of 83.85. The common currency also reversed early gains versus the dollar as a rally driven by optimism over an imminent Greek debt swap deal petered out in the European afternoon.
"There's not very much news coming from the UK market at the moment, I think really it's all about what we're seeing in Europe," said Sara Yates, FX strategist at Barclays. However, she said it was unlikely sterling would push much higher against the dollar because of expectations of further loosening of monetary policy in Britain.
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