LONDON: Sterling inched away from last week's highs against the dollar on Monday as markets looked ahead to British data this week for clues on the outlook for the economy.
Market participants refrained from taking any aggressive positions ahead of inflation data on Tuesday and employment and retail sales data later in the week, and analysts felt sterling could trade lower in coming days.
The main focus would be the Bank of England minutes on Wednesday, as markets remain divided on when the central bank will expand its asset purchase programme, while keeping a watchful eye on further sterling depreciation.
Analysts also said that last week's poor US retail sales and consumer confidence figures, coupled with China's economic recovery showing signs of flagging, kept market sentiment subdued.
"Sterling/dollar has seen a cautious start this morning given the general backdrop, like the data from China, is keeping (markets) from pushing currencies too much," said Simon Smith, chief economist at FXPRO.com.
"Also there is some risk to the upside in UK inflation data on Tuesday and this could actually undermine the currency and bring back into focus the problems that beset sterling."
Morgan Stanley also said higher inflation could be negative for sterling.
"With the BoE taking a more flexible stance to inflation, a high inflation print this week could actually be currency-negative as it just suggests a larger decline in real yields," analysts at Morgan Stanley said in a note.
The pound was down 0.1 percent on the day against the dollar at $1.5325, edging away from Thursday's high of $1.5412, which was its highest level since Feb. 20. Reported option expiries around $1.5350 could see the currency pinned to that level.
Traders said in the absence of any data on Monday, buyers could emerge at the $1.5280-90 level, which would act as near-term support for sterling.
Demand for higher-yielding alternatives to the yen since the Bank of Japan unveiled its radical stimulus programme had helped push sterling higher last week.
Analysts said the liquidity unleashed by the BoJ move had spurred investor demand for higher-yielding assets, but the benefits to sterling may only be temporary.
"Global liquidity will fail to support sterling, given that the currency offers low real yields and relatively unattractive asset performance," Morgan Stanley said.
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