LONDON: Sterling extended gains against the dollar on Wednesday, underpinned by robust UK data that has lowered chances of further monetary easing and drawn more sovereign investors to the pound.
The pound rose for a second straight day, trading 0.3 percent higher at $1.6120 and edging closer to last week's high of $1.6144. Near-term support is seen at its 55-day moving average of $1.6027 with bids from Asian central banks cited at around $1.6080 and $1.6150.
Against the euro, the pound was steady. The euro was trading at 80.70 pence, with month-end demand for euros from an European central bank going through smoothly.
Beyond these flows, investors are positioning for a weaker single currency in coming weeks and many expect it to drop towards recent lows of 80.02 pence struck last Friday.
"We expect euro/sterling to drift lower to 80 pence in the coming weeks because, while the UK economy is showing signs of a recovery, growth in the euro zone, especially Germany, looks to be in a downtrend," said Richard Driver, currency strategist at Caxton FX.
Latest data from the Swiss National Bank showed it had cut its exposure in euros from 60 percent to 48 percent while raising its holdings in sterling to 7 percent from 3 percent in the third quarter.
Better-than-expected consumer credit, mortgage data and CBI retail sales data have added to a brighter picture of the UK economy. That comes after data last week showed the UK leapt out of recession in the third quarter.
"The pound is looking more composed again after CBI's distributive trades survey reinforced hopes that Britain's economic recovery is on the right path," said Nawaz Ali, UK market analyst at Western Union Business Solutions.
He said investors were looking to Bank of England deputy governor Charlie Bean's speech later in the day for hints on policy before next week's monetary policy committee meeting.
The slew of better-than-expected UK data has lowered chances for further monetary easing from the BoE next month and driven investors to buy the pound, although there are still lingering concerns about the pace of economic recovery.
The latest snapshot of British consumer confidence highlighted the fragility of the UK's recovery from recession, a survey by researchers Gfk NOP showed on Wednesday.
Some BoE policymakers have flagged a weaker outlook for growth in the fourth-quarter. Purchasing Manufacturers' Index data for manufacturing, construction and services due this week and next week will be watched for an indication of UK economic health into the fourth quarter.
While good activity data will lift sterling broadly, disappointing numbers could see the pound slip back towards the $1.60 mark. Technically, though, charts were suggesting more gains in the pound against the dollar in the near term.
"The 100-day moving average is in the process of crossing above the 200-day moving average. This suggests we may see it break on the upside," James Hughes, chief market analyst at Alpari wrote in a note.
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