LONDON: Sterling recovered from a six-week low against the dollar on Monday as the US currency dipped after recent strong gains, but it was still vulnerable to signs the US central bank may scale back monetary stimulus.
The pound could be lifted by Bank of England minutes on Wednesday and a string of UK data this week, including retail sales and revised first quarter gross domestic product figures, if they continue to point to an improving UK economy.
But analysts expected gains to be limited, especially against the dollar which has gained broadly recently.
Sterling was up 0.2 percent at $1.5204, off a low of $1.5158 hit on Friday when the dollar gained after US Federal Reserve officials called for the central bank to start tapering bond buying under its quantitative easing programme.
As well as UK data, focus will centre on Fed Chairman Ben Bernanke's testimony to Congress on Wednesday to see whether he also favours scaling back QE.
"BoE minutes and GDP data might cause the pound to react but I don't think there will be any sustainable new trends in the short term when the market is dominated by dollar direction," said John Hardy, currency strategist at Saxo.
UK inflation data is also due on Tuesday and is expected to show price pressures falling. However, with the BoE expected to leave policy on hold for the next couple of months the pound was not expected to show much reaction.
Renewed losses could see the pound target the April 4 low of $1.5034, but traders said it could hold up for now with bids reported above $1.5150.
"Fundamentally the picture is relatively bright in the UK, but it's all about the dollar right now. Everyone wants to be long of dollars in anticipation that Bernanke could turn more hawkish," said Nawaz Ali, market analyst at Western Union Business Solutions.
The euro was steady at 84.51 pence, staying above chart support at 83.98 pence, a low reached on April 26 which was its weakest since late January. Traders cited bids from 84.20 to 84.40 pence.
The BoE raised its growth forecasts and was more upbeat in its quarterly Inflation Report last week, although investors stayed wary given concerns that incoming Bank of England head Mark Carney could ease policy when he takes up the post in July.
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