LONDON: Sterling rose against the euro on Monday, with analysts expecting improving economic data in the coming week that could bolster the case for an earlier than expected rise in interest rates.
A raft of economic data, ranging from the unemployment rate, to which the Bank of England has specifically tied its monetary policy outlook, to consumer price inflation and retail sales are all due this week.
Minutes of the BoE's last policy meeting are also due.
Since Governor Mark Carney pledged to keep monetary policy easy until the unemployment rate dropped to 7 percent from 7.8 percent now - a shift he said could take three years - , British economic data is likely to be a major driver of sterling.
In unveiling the BoE's "forward guidance" on interest rates last week, Carney also said that if inflation was to rise faster than expected or financial stability were to be threatened, the bank could tighten policy.
In the wake of the guidance, short-term interest rate markets priced in hikes earlier than late-2016, as suggested by Carney.
The euro was down 0.1 percent at 85.935 pence, extending last week's near 1 percent drop. A fall below 85.82 would take the euro to a one-month low.
Sterling was marginally lower at $1.5475, having hit $1.5574, its strongest since June 19, last Thursday, a day after the BoE unveiled its guidance.
"There is probably a bit more room for sterling upside on better data now that the latest BoE event risk is out of the way," said Stephen Gallo, European head of FX strategy at BMO Capital Markets.
He added that faster-than-expected inflation this week would lead to further divergence between price pressures in the euro zone and the UK and offer a selling opportunity in euro/sterling.
"The 85.80 level should break quite easily," he added.
Inflation data for July is due on Tuesday. UK inflation was 2.9 percent in June, well above the BoE's target of close to, but not below, 2 percent.
Analysts also said the BoE's August minutes, to be released on Wednesday, would be scrutinised for clues to whether its guidance was unanimously adopted.
"Any indication that this was not unanimous could see some volatility," said a London-based spot trader.
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