LONDON: Sterling rose to a two-week high against the dollar on Tuesday, helped by better appetite for perceived riskier currencies amid growing optimism that the European Central Bank will take bold steps this week to stem the region's debt crisis.
The euro zone is the UK's biggest trading partner and any easing of the crisis is seen as positive for sterling, especially against the dollar. The ECB meets on Thursday and is widely expected to announce a bond buying programme aimed at lowering borrowing costs for Spain and Italy.
As such, the pound lagged the euro, with the common currency up 0.1 percent at 79.35 pence.
Against the dollar, sterling rose to $1.5905 having earlier hit a two-week high of $1.5909. Traders cited resistance at its August 23 high of $1.5912 with some expecting it to test that level if upcoming UK data is stronger than expected.
Construction sector PMI survey for August is due at 0830 GMT and is forecast to have fallen. It will come a day after a stronger-than-forecast manufacturing industry survey prompted market players to take a slightly brighter view of the UK economy.
The manufacturing purchasing managers' index (PMI) came in at 49.5 in August, well ahead of forecasts of 46.0 and leaving it just short of the 50 level that divides contraction from expansion.
"If we get better construction PMI hot on the heels of better manufacturing PMI, then we might have a look at $1.5910/20," said a London-based spot trader. "We have option barriers above at $1.5950."
While there were signs of manufacturing activity stabilising, consumer spending was still sluggish, keeping alive chances of more stimulus from the Bank of England.
The British Retail Consortium said overnight that the London Olympics failed to boost retail sales as hoped last month, when households preferred to watch the games rather than go shopping, giving stores one of their worst months of 2012.
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