Sterling hits 3-1/2 week high versus dollar

Sterling hit its highest in more than three weeks against a broadly weaker dollar on Monday and looked set to gain further after Federal Reserve chief Ben Bernanke sounded a note of caution on the US economy. Bernanke said further improvements in the US labour market would require faster economic growth, prompting some dollar bulls to cut long positions in the dollar.
The pound rose 0.5 percent against the dollar to $1.5943, breaking above its March 21 high of $1.5924, with traders citing buying by a UK investment bank. "This is more of a dollar move than a sterling move. It feels like the market was slightly overdone in being long of dollars and it's time to unwind some of that," said Geoffrey Yu, currency strategist at UBS.
The break above $1.5924 could prompt a test of $1.60, the level that has capped sterling gains since mid-November. On the downside, traders cited stops around $1.58 and bids at $1.5790. Technical analysts said a break below the March trough of $1.56 would put the $1.5234 January low in focus as the next target.
The euro was trading close to flat against the pound at 83.61 pence, and remained pinned firmly below the March peak of 84.24 pence that is seen as strong resistance. Technical analysts said a break above that level could open the door to a test of 85.00 pence, the 2012 peak.
UBS's Yu said with little UK data scheduled in coming days sterling/dollar, also known as cable, would be sensitive to dollar-specific news and could break above $1.60 if the Fed Chairman continued to sound more dovish on the US economy. "Bernanke has got two more speeches this week so we could see cable go higher if he confirms the views that he expressed today," Yu said.
A final reading of UK gross domestic product for the fourth quarter of 2011 on Tuesday is expected to be unchanged at minus 0.2 percent. In the medium term, market players said sterling's direction was likely to be determined by speculation over whether the Bank of England will signal another round of asset purchasing to boost the economy.