LONDON: Sterling rose against a weaker dollar on Monday as the political dispute over the US federal budget and debt ceiling showed no sign of heading for resolution.
Analysts said the pound had strong chart support above $1.60, with the dollar seen under pressure due to concerns politicians may not reach a deal to avoid a US debt default by an Oct. 17 deadline.
But the pound fell last week as some investors questioned whether Britain's economic recovery could continue at its recent strong pace and became concerned the currency may have risen too far too fast.
Sterling was up 0.3 percent at $1.6053, but it remained well away from a nine-month peak of $1.6260 hit on Tuesday. Up to that point the pound had gained more than 7 percent since early August.
"The dollar will stay on the defensive until there is some degree of resolution in the US and this has probably put a floor on sterling/dollar at $1.60," said Jeremy Stretch, head of currency strategy at CIBC.
"The underlying story of the UK recovery remains on track ... If and until we get some questioning of the durability of the UK recovery going into the fourth quarter then sterling will stay relatively well supported."
Analysts at Morgan Stanley, however, advised clients to sell sterling on any rebounds, arguing that UK data was now "failing to meet heightened market expectations".
"We now view sterling/dollar rebounds back towards the $1.6150 area as providing renewed selling opportunities, targeting an initial move lower to $1.5720."
Purchasing managers' surveys on UK manufacturing, services and construction activity last week were strong, continuing to point to an improving economy, but delivering a mixed performance against market expectations.
UK data overall has prompted investors to start pricing in a possible BoE rate hike by the first half of 2015, well before the central bank's projection of 2016 for a first increase.
The euro was down 0.1 percent at 84.56 pence, off a one-month peak of 84.755 pence touched on Friday.
Comments
Comments are closed for this article.