LONDON: Sterling climbed against the dollar on Tuesday as demand for perceived riskier currencies improved, although it lagged the euro on concerns that soft UK inflation data would give the BoE more room to ease policy.
The pound was up 0.1 percent on the day at $1.6090, trading above last week's one-month low of $1.5975 but still well below the late September peak of $1.6310. Offers to sell were cited at $1.6100 with near term support at $1.6020, the low struck on Monday.
Against the euro, the pound was lower. The euro was 0.3 percent higher at 80.75 pence, not far from a recent high of 81 pence. The single currency continued to hold well above chart support at Thursday's low of 80.23 pence and the 21-day moving average at 80.22 pence.
Consumer price inflation in September is forecast to rise 0.4 percent from a month ago, slowing from a rise of 0.5 percent in August. For the year, inflation is forecast to rise 2.2 percent in September, lower than the 2.5 percent annual rise seen in August.
"We are expecting a softer reading for CPI and thus sterling will be under a little bit of pressure and euro/sterling will move higher," said Kiran Kowshik, currency strategist at BNP Paribas. "There might be heightened speculation about BoE QE and dovish minutes will have a negative impact on sterling."
Traders are also wary of the pound given data later in the week - including jobs and retail sales figures, as well as Bank of England (BoE) minutes - may add to the risk of the central bank opting for more asset-buying quantitative easing (QE) next month.
QE is usually negative for the pound as it increases the supply of the currency.
Lloyds strategists said in a note that should CPI print softer than expected, it would see sterling underperform.
"While our economists expect another 50 billion pounds of asset purchases to be announced at the November meeting, it is not fully priced in to the market, so a weak CPI print will likely weigh on sterling performance."
A poll conducted by Reuters showed a majority of economists believe the BoE will increase its QE programme by another 50 billion pounds in November.
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