LONDON: Sterling rose against the euro on Monday, paring some of last week's losses, although it may be kept in check if British economic data later in the week points to softer inflation and moderating growth.
The euro was down 0.4 percent at 79.11 pence. The single currency was also on the defensive after euro zone inflation expectations fell to a new low, keeping alive expectations that the European Central Bank may have to resort to government bond buying early next year.
Against the dollar, the pound was 0.1 percent higher at $1.572, staying above a 15-month trough of $1.5585 hit last Monday. Traders said option bids around $1.5700 would provide support in the near term.
"However, we are heading into an eventful week in the pound with inflation, jobs data and retail sales due on Tuesday, Wednesday and Thursday respectively. Soft economic read is a risk for sterling bulls," said Ipek Ozkardeskaya, market analyst at Swissquote.
British annual inflation for November is forecast to decline to 1.2 percent from 1.3 percent in October. The unemployment rate is forecast to edge lower while wages could outperform inflation, giving a boost to the pound. But unless investors bring forward expectations of a rate hike substantially, sterling is unlikely to rally much, traders said.
"Our economists are looking for another acceleration in wage growth to 1.5 percent year-on-year, which should be consistent with our view that the Bank of England will not be able to delay a hike past August 2015," BNP Paribas said in a note.
Currently, many investors are pricing in a rate hike in the second half of 2015 with some not expecting a move until early 2016.
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