Sterling hit a two-week high against the dollar on Monday, leaving it poised for a possible test of its highest level in more than a year, particularly if UK data shows another rise in already high UK inflation. UK annual CPI, due on Tuesday, is expected to rise to 4.2 percent in February, from 4.0 percent in January and more than double the Bank of England's target. If confirmed, that would increase the chances of an early rate hike, possibly as soon as May.
Another higher-than-expected inflation reading could be the catalyst to push sterling beyond $1.6344, which would mark its highest level since January 2010, while a hawkish tone to BoE minutes on Wednesday may help it extend gains. Sterling was up 0.3 percent to $1.6277, having stopped just short of $1.63 to hit a high for the session of $1.6295.
Sterling also gained against the euro, which was down 0.2 percent at 87.16 pence. However, the single currency was not far from Friday's four-and-a-half month high of 87.59 pence. The euro has support above its 100-week moving average around 86.74 pence. Technical analysts said a break above Friday's high could see it target the 2010 high of 89.40 pence, but stiff resistance was seen ahead of 90 pence. Some analysts though have pushed back their forecasts for rate hikes following some recent weaker UK data and on uncertainties about the impact of events in Japan, as well as in North Africa and the Middle East.
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