LONDON: Sterling bounced back from a 14-month low against the euro on Monday, helped by better appetite for riskier currencies and assets, although lingering concerns about Britain's future in the European Union checked gains.
Britain's push to win backing from its European partners for its wish list of EU reforms will go "right to the wire" at a summit this week, Foreign Secretary Philip Hammond said at the weekend.
Some banks predict falls of up to 20 percent in sterling's value if Britons vote to leave the EU, a scenario dubbed "Brexit," although the most likely scenario remains the status quo.
"Although there are other issues also on the agenda, the focus will be on progress on UK renegotiation at this week's EU leaders' summit," said Adam Cole, head of G10 FX strategy at RBC Capital, adding that any signs of agreement will be positive for the pound.
Sterling was flat against the dollar at $1.4495, while it was around 0.5 percent stronger against the euro at 77.20 pence, having slumped to a 14-month low of 78.97 pence on Thursday.
The single currency tends to move in sync with safe-haven assets due to its low yield and often underperforms when global stocks and commodities rise.
Safe-haven assets such as German Bunds underperformed on Monday after China's central bank fixed the yuan stronger, easing some of the recent worries about devaluation.
Sterling traders will also focus on monthly British inflation data due on Tuesday, expected to show a rise of 0.3 percent year-on-year.
Wage earnings due to be released Wednesday could see investors price in low rates for longer, with base effects likely to depress annual growth.
Investors have also priced in the possibility the central bank may cut rates over the coming months following recent turmoil in global stock markets, and a drop in bank stocks and mixed data from Britain.
But some analysts said the move in the rates market was probably overdone. Once sentiment in riskier assets stabilises, sterling could gain, especially against the euro, they said.
"Rebounding risk appetite should ease global funding concerns working in favour of current account deficit FX such as the pound," said Morgan Stanley in a note, recommending investors to sell the euro against the pound this week.
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