LONDON: Sterling edged higher against the dollar on Monday and looked set to hold firm after a run of better UK data that have bolstered expectations the economy is emerging from recession.
It slipped to a four-month low against the euro however, after regional elections in Spain saw Spanish Prime Minister Mariano Rajoy gain backing in his home region of Galicia, a boost for his austerity-focused government.
Market players were expecting preliminary UK GDP data on Thursday to show the economy grew in the third quarter of 2012 after three consecutive quarters of contraction.
Strategists said moves in the pound could be muted ahead of those numbers and take direction from developments in the euro zone, although investors will also have one eye on a speech by Bank of England Governor Mervyn King on Tuesday.
"It is a quiet week in terms of data but the market is looking ahead to the GDP data and that suggests the UK will move out of recession, so it is expecting better news later this week," said Jane Foley, senior currency analyst at Rabobank.
The pound rose 0.2 percent to $1.6031. Market analysts at Alpari said in a note there was resistance at Friday's high of $1.6066 and beyond that at $1.61.
Against the euro sterling was close to flat at 81.32 pence, holding near a four-month low of 81.485 hit on Monday during Asian trade.
Better-than-expected public sector borrowing and jobs data last week dampened expectations that the Bank of England will embark on a further round of money printing known as quantitative easing (QE) in November.
QE is generally seen as negative for a currency as it increases its supply.
A strong GDP reading could add to bets the BoE will keep policy on hold, although Rabobank's Foley said the pound may struggle to benefit given concerns government austerity measures could weigh on economic growth in the fourth quarter.
"This week we could see a move back to $1.60 and over the month that is our view, finding support around the 50-day moving average (around $1.6009)," Foley said.
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