LONDON: Sterling steadied against the dollar on Monday, holding most of gains made the previous week on expectations of more US monetary easing, but could struggle to push much higher even if UK manufacturing data exceeds expectations.
A manufacturing PMI survey for August, due at 0828 GMT, is forecast to come in at 46.0, slightly better than July's 45.4 but still well below the 50 mark that divides contraction from expansion.
Some analysts said the reading would have to be significantly better than expected to push sterling above strong resistance around the August high of $1.5912.
"Everyone recognises the economy is not going sideways, it is retreating. The PMI will only have an impact on sterling if it is markedly different to expectations," said Michael Derks, chief strategist at FxPro.
Sterling was nearly flat against the dollar at $1.5866. It held close to Friday's high of $1.5896 when a speech by Federal Reserve chairman Ben Bernanke prompted market players to sell the dollar on the understanding further US monetary stimulus could be announced very soon.
Strategists said sterling was likely to continue tracking moves in the euro versus the dollar, and could rally in line with other perceived riskier currencies if market sentiment turns more positive.
The euro was steady against the pound at 79.25 pence, with resistance seen around the 100-day moving average at 79.88 pence.
A slew of euro zone manufacturing PMI data showed the currency bloc was also struggling as a result of the long-running sovereign debt crisis, which could limit downside for sterling against the single currency even if the UK data surprises to the downside.
"There remains significant potential for a downside shock given the Olympics last month which could have seen productivity take a dive as the country enjoyed the spectacle of three weeks of sporting success," said Michael Hewson, senior markets analyst at CMC Markets.
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