Sterling's rally stalled on Thursday after it hit several key technical levels, but most analysts said hopes the economy was bottoming out were still likely to fund further gains. On Wednesday, the pound rose above the key $1.60 level against the dollar, hitting a near seven-month high of $1.6087.
But it was unable to hold those gains, and fell to a low of $1.5852 on Thursday. By 1450 GMT, it recouped most losses to trade flat at $1.5959 but stayed below $1.60. "The recovery in sterling seems to have run out of steam around the $1.600 level," said analysts at Calyon in London.
The euro rose 0.7 percent to 87.28 pence, recovering from a 3-1/2 month low of 86.49 pence the previous day after it fell through the 200 day moving average around 86.80 pence. In contrast, the pound rose sharply against a broadly weak yen, up 1.5 percent on the day at 154.44 yen. Analysts expect the pound to retain its underlying bullish sentiment as pessimism about the UK economy and financial sector continues to recede, helping the currency rebound from 23-year lows hit against the dollar in January.
The Confederation of British Industry's (CBI) survey showed retail sales fell more than expected in May. The CBI's distributive trades survey sales balance fell to -17 this month from +3 in April, when the figures were boosted upwards by the timing of Easter. Analysts had predicted a sales balance of -10. Retailers expect sales to slow further in June, with the balance at -20.
The quarterly business situation balance, however, rose to -8 from -26 in February, the highest since November 2007. "Cable is overbought but bullish momentum is stronger than it has been since December 2006," said Nicole Elliott, technical analyst at Mizuho Corporate Bank in London. Meanwhile, a Reuters poll found all economists polled expect the Bank of England to leave rates unchanged at its policy meeting next week.
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