Sterling steady, eyes on UK inflation data

LONDON: Sterling edged up against the dollar on Monday as traders looked to two days of economic data for signs that Britain's recovery is on track.

The pound suffered its first weekly fall versus the dollar in six weeks last week after a string of weaker-than-expected data called into question the idea that the Bank of England will raise interest rates before the end of the year.

Sterling has gained more than 10 percent against a basket of currencies over the past year and hit a near-six-year high earlier this month, largely on the expectation that the BoE will hike rates from historic lows ahead of its peers in North America and Europe.

But if UK inflation and employment data due out on Tuesday and Wednesday respectively disappoint the market, sterling could come under pressure.

"Right now the pound is just pausing for breath, holding onto its gains," said Kathleen Brooks, research director at Forex.com. "The risk is for a sell-off on Tuesday and the opposite, potentially, on Wednesday, if we get stronger-than-expected wage growth."

Sterling was up 0.2 percent against the dollar at $1.7138 . Against the single currency, it was broadly flat at 79.53 pence per euro.

Traders said that there were already a good deal of positive expectations priced into the pound and that without some stronger data, it would struggle to make further gains.

Sterling has benefited from the dollar's failure to take off this year, they said. But that could change if the U.S. Federal Reserve begins to signal that it is getting closer to a rise in interest rates.

"As long as inflation remains weak in the UK, this is likely to keep the Bank of England on a gradual path of rate hikes. As a result, sterling upside may be capped, especially versus the dollar as Fed rate hikes...move closer into view," Barclays analysts said in a research note.