LONDON: Sterling dipped in early European trade on Monday after hitting a near six-year high last week against a basket of currencies, and a steady flow of data in coming days will likely decide whether it resumes its climb.
Industrial output numbers on Tuesday are followed by the RICS housing survey and trade numbers on Wednesday and Thursday.
In general, the numbers on a steadily improving UK economy continue to be very positive, fuelling expectations of a rise in interest rates by the end of this year or early next.
But there is a debate going on over the extent to which the currency can keep gaining more than a year into a rally that has taken it some 13.5 percent higher against the euro and dollar denominated basket of currencies.
CFTC positioning data for the week ending June 24 showed short-term investors had trimmed bets on further pound gains but were still more convinced of its potential to rise further than any of the other major world currencies tracked.
"Sterling continues to defy over-bought indications on the charts and the longer this remains the case, the less likely they are going to come to fruition," said Simon Smith, chief economist with retail FX platform FxPro.
Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi in London, said he was still looking for the pound to strengthen in the near-term.
"The economy looks strong and the Bank of England is moving gradually towards raising interest rates," he said.
"The PMI survey numbers on UK manufacturing have been pretty healthy, so if that holds the industrial production numbers should be a positive for the pound."
European Central Bank President Mario Draghi fleshed out the terms of the long-term loans the ECB will offer to banks in coming months and kept the possibility of fighting disinflationary pressures with a large-scale asset purchase programme on the table.
That provided more fuel for those pointing to the potential for the pound to gain further against the euro as monetary policy in the UK and euro zone heads in opposite directions.
The common currency was just 0.09 percent higher against the pound at 79.29 pence after hitting a 22-month low of 79.15 pence earlier in the day following weaker-than-expected German industrial data.
Against the dollar, sterling traded flat at $1.7149 .
While data backed expectations that the U.S. economy is recovering well after a weather-related dip in the first quarter, investors are wary of driving the dollar higher given the Federal Reserve is still likely to keep rates low for longer in the absence of any significant rise in wage inflation.
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