Sterling near 2-wk high vs dollar; firms vs euro

LONDON: Sterling was steady against the dollar on Monday, close to a two-week high, while it edged higher against the euro as investors awaited UK inflation data and Bank of England minutes later in the week.

Another high inflation reading combined with a hawkish tone to the monetary policy committee (MPC) minutes could push sterling towards $1.63 against the dollar and even $1.6344 -- the highest level in more than a year, analysts said.

BoE policymaker Spencer Dale sounded an upbeat tone in a report on Monday, saying Britain's economy remains on a recovery track while he played down weak broad money growth.

"The pound is taking centre stage this week. Wednesday's MPC minutes will have a big effect on sterling. If there is an overall hawkish tone from the MPC then cable could push above stiff resistance at 1.63 and see further gains," said Kathleen Brooks, research director at Forex.com.

Sterling was steady against the dollar at $1.6235, hovering near a high of $1.6258 hit on Friday, its strongest since March 7. Traders said reported selling by East European accounts offset earlier buying by a Swiss name.

Sterling gained against the euro, which was down 0.25 percent at 87.13 pence, but was still not far from a four-and-a-half month high of 87.59 pence hit on Friday.

However, market players were wary about the chances that policymakers may not raise interest rates as early as previously thought given the fragile state of the UK economy.

A survey on Friday showed UK consumer confidence at the lowest level in its 7-year history, while BoE Deputy Governor Charles Bean was quoted as saying Britain had entered a "hazardous period".

Short-term interest rate markets are now pricing in a UK rate rise around August, later than estimates earlier this month for a June rate increase.

Ebbing UK rate expectations have weighed on the pound. Data show a big shift in sterling positioning, with speculators turning to a net short of 225 contracts from net long trades of 33,906 the previous week.

DATA, BUDGET AHEAD

UK CPI data out on Tuesday is forecast to show annualised inflation rising to 4.2 percent versus 4.0 percent previously, staying well above the BoE's 2 percent target.

"Indications that the headline inflation accelerated further in February on Tuesday could add conviction to the view that rate hikes in the UK will come sooner rather than later," Citi analysts said in a note.

Finance Minister George Osborne is also set to reveal UK budget plans on Wednesday. Forex.com's Brooks said the budget is likely to have a muted impact on sterling, however, with growth and public borrowing figures unlikely to be revised.

Overnight housing market numbers came in mixed with year-on-year asking prices in March up by 0.9 percent versus February's 0.3 percent, according to Rightmove. However, the month-on-month print slowed to 0.8 percent from February's four-month high of 3.1 percent.