Sterling edged up against the dollar on Wednesday, helped by stronger UK data which has lowered the chances of further monetary easing by the Bank of England next week. The pound rose for a second straight day, trading 0.2 percent higher at $1.6104, having hit a session high of $1.6137 on Tuesday and not far from last week's peak 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 $1.6050. Market players will keep an eye on Britain's Purchasing Managers' Index data on manufacturing, construction and services due this week and next for an indication of economic health into the fourth quarter.
The euro fell 0.1 percent against the pound and was trading at 80.53 pence, with month-end demand for euros from a European central bank going through smoothly. Beyond these flows, investors are positioning for a weaker euro in coming weeks and many expect it to drop towards recent lows of 80.02 pence struck last Friday. "If the PMI data were significantly below consensus, you would see markets moving towards a more aggressive QE forecast and sterling will be in for tougher times until the BoE meeting next week," said Tom Levinson, FX strategist at ING, who are expecting the BoE to announce more stimulus next week. While firm activity data would lift sterling broadly, disappointing numbers could push the pound back towards the $1.60 mark. Technically, though, charts were suggesting more gains in the pound against the dollar in the near term.
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