Sterling rose against a broadly weak dollar on Tuesday, but gains were capped as weak UK data added to the view that softness in the economy will keep UK interest rates on hold for the foreseeable future. The pound slipped to a one-month low versus the euro as the single currency rallied against the dollar.
Also boosting the euro was the view the European Central Bank will signal an imminent interest rate rise at a policy meeting on Thursday. This would increase the euro's rate differential versus the pound and push it higher. Market participants said dollar weakness was the main driver boosting the pound, while adding that it may struggle to hold its gains if the Bank of England's Monetary Policy Committee holds rates at 0.5 percent on Thursday, as widely expected.
Sterling rose 0.7 percent on the day to a session high of $1.6474, its highest in nearly a week. Earlier in the day, it bounced off a session low of $1.6324 after finding support at its 55-day moving average around that level, but faced resistance at $1.6483, the 61.8 percent retracement of its slide in April-May. The euro rose to 89.45 pence, its highest since June 5. Technical analysts said resistance at 89.50, the 78.6 percent retracement of euro/sterling's fall in May, would need to be taken out for a test of psychological resistance at 90 pence. In late London trade, it was at 89.20 pence, up slightly on the day.
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