Sterling edged lower against the dollar on Monday, but held within sight of a 3-1/2 month high as investors anticipated stronger data in the week ahead that could boost expectations the UK economy will dodge a recession this year. CBI distributive trades data and manufacturing and construction PMI surveys for February are forecast to be roughly in line with the previous month.
However, other recent surveys have been stronger than expected, adding to bets the UK economy will grow in the first quarter of this year and recover from a contraction at the end of 2011. This could dissuade the Bank of England from pumping further cash into the economy through its quantitative easing program, which tends to be negative for the pound as it involves the bank creating money to use as a stimulus.
Sterling was last down 0.2 percent at $1.5848, but traded well above last week's low of $1.5648, plumbed after the release of more dovish-than-expected BoE minutes. The UK currency held within sight of the 2012 peak of $1.5929, the highest level the mid-November. Strong resistance was seen around the 200-day moving average at $1.5905, a level it has failed to hold above since September.
Positioning data showed speculators cut their bearish bets against sterling in the week ended February 21, and more of those positions would have been flushed out after the BoE minutes. That could leave room for fresh bullish positions to be initiated, market players said. "I think last week's sell-off in sterling (after the BoE) was a little bit overdone. That means we could find support in the run up to survey data this week," said Jane Foley, senior currency analyst at Rabobank.
Although BoE minutes surprised the market by showing two policymakers voted to increase asset purchases to 75 billion instead of 50 billion pounds, some analysts said better data could prompt policymakers to vote more hawkishly in future. "Given the decent pick up in economic activity in the period since Q4, in particular PMIs, it seems that the UK economy should experience relatively decent growth in the first quarter of 2012," said Commerzbank analysts in a note. The euro fell 0.3 percent to 84.46 pence against sterling, but remained close to Friday's 2-1/2 month high of 85.06 pence. The single currency has rallied broadly in recent sessions following a deal on Greece's bailout package and as market players positioned for the LTRO.