Sterling ends three-day losing streak against dollar

LONDON: Sterling rebounded against the dollar on Monday after three days of losses, as investors positioned themselves for a week of UK data that will test the pound's ability to hold onto its gains since the summer.

The pound rose 0.1 percent against the dollar to $1.6310. After rallying to just below $1.65 on Wednesday, the pound fell back to a two-week low of $1.6263 on Friday as investors locked in profits.

The euro rose 0.2 percent against the pound to a one-month high of 84.55 pence after data showed business activity picking up in the euro zone. A decline in the yield spread between UK and German two-year government bond yields also supported the euro.

Sterling has been one of the currency market's surprises since the summer. Better-than-expected UK economic data have added weight to the view that interest rates may rise earlier than previously expected.

But its strength could be tested this week, which will see inflation data on Tuesday and minutes from the Bank of England's Monetary Policy Committee and jobless data on Wednesday.

"Cable had three days of losses from the mid-$1.64s, so a rebound was expected," said Nawaz Ali, UK market analyst at Western Union. Cable is the dollar-sterling exchange rate. "This week's minutes could be a problem for sterling if the MPC starts talking about exchange rates ... The same day there's potentially some fireworks from the Federal Reserve."

Some analysts expect the Fed to start scaling back its massive bond-buying programme this week, although the consensus is still for March. The decision is likely to influence the pound's rate against the dollar, whenever it comes.

Trading volumes of sterling against the dollar and the euro were below the average over the past month, according to data from the Reuters dealing platform.

The euro has been supported by the European Central Bank's reluctance to loosen monetary policy further. As banks shy away from lending to each other towards year-end, inter-bank lending rates in the euro zone have risen. Repatriation of funds by European banks to shore up their balance sheets has also helped the currency.