LONDON: Sterling held its ground against the dollar and euro on Monday, aided by a better-than-forecast UK construction survey that showed housebuilding growing at its fastest rate in more than a decade and the job market tightening.
The pound, which struggled against both the euro and the dollar in the second half of July, pulled back from 79.84 pence per euro - close to its weakest in a month - after the data, to trade at 79.76 pence.
It firmed to $1.6832 from around $1.6819 but remained close to a seven-week low of $1.6812.
After a 15 percent gain against the dollar in the year to July, analysts at major banks are divided on whether this is just a short-term correction for the pound or the end of the rally.
"We are obviously expecting a bit of a loss of momentum," said James Knightley, an economist at ING Bank in London.
"But we're still in the camp looking for a November rise in interest rates, so we think sterling still looks in reasonable shape, particularly against the euro."
He pointed to signs in the survey of construction purchasing managers of a further tightening of British labour markets. Hiring in the sector rose at the fastest rate since at least 1997, when the survey began.
"The missing element has been wage growth and the Bank of England is clearly still waiting for a clearer signal that higher employment is feeding through to that," Knightley said.
"But pressure does appear to be building. There is strength across a wide range of sectors in the economy."
Sterling had been hurt on Friday by an equivalent survey of manufacturing, which showed factory activity expanding at their slowest rate in a year.
Sterling recovered a little ground against the greenback after weak U.S. jobs data, but ended with a fourth straight week of losses against the dollar, its worst run since early 2013.
Markets will have to wait till later this month for any signs of a shift at the Bank of England's Monetary Policy Committee (MPC) meeting this week. The bank's quarterly inflation report next week may provide more fuel for those expecting it to raise rates well before most of its peers.
"The July MPC minutes signalled that the debate would centre around the rate decision being determined by the level of spare capacity or the rate at which it is being used up, with there being more uncertainty about the former," said analysts from RBC Capital Markets in a note.
"In any case, the recent weak earnings data may have been enough to keep even the more hawkish members from voting for a hike on this occasion."
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