Sterling rose to its highest in more than four months versus the dollar on Tuesday, with the US currency burdened by increasing chances of more US monetary easing and the pound able to shake off the negative effects of a shaky economic outlook in the UK.
A survey by the Confederation of British Industry on Tuesday showed that while UK retail sales unexpectedly steadied in March, the outlook was poor amid high fuel prices and slow wage growth. The dollar struggled near a four-week low against a basket of currencies, having been hit hard by dovish comments from Federal Reserve chief Ben Bernanke who left the door ajar for more monetary stimulus in coming months.
"This move in sterling has largely been driven by the dollar and I think there will need to be another bout of dollar weakness which is reflected in euro/dollar for sterling to accelerate beyond $1.60," said Jane Foley, senior currency strategist at Rabobank. "To get sterling independently excited we would need to see a loss of dovish tone from some MPC members," said Foley.
Sterling briefly hit $1.6002, its highest since November 14, as traders said demand from a major US bank triggered an option barrier at $1.6000. Tough resistance was at its 200-week moving average of $1.6014. It was trading up 0.1 percent on the day at $1.5983 in the London afternoon. The euro was down 0.2 percent for the day at 83.43 pence, with offers cited around 83.70. It has stayed below its March peak of 84.24 pence which is seen as strong resistance by many.
The last time sterling broke past its 200-week moving average in the past decade, it went on to log impressive gains in the following months, CitiFX Wire said in a note. The pound posted its biggest daily gain in over a week on Monday, and having broken past resistance at its March 21 high of $1.5924 traders did not rule out a test of the psychologically significant $1.60 mark in the near term. Bernanke said on Monday further improvements in the US labour market would require faster economic growth, prompting dollar bulls to cut long positions in the greenback. More QE from the Fed would usually lead to more selling in the dollar.