Sterling rose against the dollar on Monday, boosted after strong readings for the UK manufacturing sector and mortgage approvals increased optimism that the British economy is improving. Broad selling in the dollar helped to support the pound, but the UK currency tumbled to a session low against the euro after a European central bank was seen buying the single currency before a bank fixing.
The CIPS/Markit purchasing manager's index on Monday came in at 54.1 for December, up from 51.8 in November and exceeding forecasts for 52.0. The data showed UK manufacturing activity expanded at its fastest pace in more than two years.
Other data showed that British lenders in November approved the highest number of home mortgages since March 2008, while the Bank of England's preferred gauge of money supply showed a significant increase. Analysts said sterling was supported by broad losses in the dollar ahead of key US economic data due later in the week.
By 1425 GMT, sterling traded at $1.6190, having climbed as high as $1.6242 after the data. Earlier in the day, sterling had fallen to a session low of $1.6060, but recovered after a UK bank was seen buying the pound when London traders returned from the New Year holiday.
The pound has begun 2010 on a buying note against the dollar, after climbing more than 10 percent in 2009. The euro rose 0.6 percent to the day's high of 89.30 pence, boosted after a European central bank was seen buying euros around the 88.80 pence area.It had fallen as low as 88.53 pence in early trade, but its 200-day moving average located around 88.50 pence had provided a cushion against further looses.
The single European started the year on a bullish note after falling roughly 7 percent against the pound last year. Trade was choppy on Monday due to thin liquidity at the start of the year. Sterling added to gains made against the dollar last week due to year-end position adjustments, but analysts say broad sterling sentiment remains negative due to concerns about a flagging UK economy.
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