Sterling was steady against the dollar on Monday and was seen staying near recent peaks as investors seeking refuge from turbulence in financial markets and the eurozone debt crisis eyed the UK's slightly better fiscal position. But analysts said the pound's scope for gains may be limited given wariness that upcoming data may highlight the fragility of the UK economy.
Confederation of British Industry surveys on Tuesday and Thursday will indicate how the manufacturing and services sectors have fared in August. The pound was steady versus the dollar at $1.6443, with charts showing support at its 100-day moving average around $1.6292. Traders cited stop-loss orders at $1.6540 and $1.6620, just above Friday's 3-1/2 month high of $1.6618.
The euro was flat against the pound at 87.44 pence, with downside stops cited at 86.70 pence. Late last week, the euro dropped briefly below its 200-day moving average - now at 86.72 pence - but it has since recovered. Technical analysts say a close below that level could signal further falls.
"Momentum looks to be building for a downside break in EUR/GBP out of its 86.00-91.00 pence range. Directionally this would be in line with our 84.00 pence forecast but ahead of our 12-month timescale," ING currency strategist Tom Levinson said in a note to clients. Risks to this would be if expectations that the Bank of England may do more quantitative easing gather pace, he added.
Investors view the pound as undervalued compared to many other G-10 currencies, particularly against the euro. Positioning data showed currency speculators increased short positions in sterling versus the dollar in the week ending August 16, suggesting the pound has room to rise further if speculators unwind those positions.