Sterling rose against the dollar on Tuesday after data showed UK inflation ticked up as expected in March, while a smooth Spanish bill auction fuelled investor appetite to buy alternative currencies to the safe haven greenback. The cautious improvement in sentiment towards the euro zone, aided by a more positive than expected German ZEW business survey, failed to boost the euro against the pound however, with the shared currency hovering close to last week's 19-month low.
Gains against the euro helped trade-weighted sterling climb to 82.4, to Bank of England data said. A rise beyond 82.4 would be the index's highest level since August 2010. "The risks facing the UK are coming from the euro zone, so good news for the euro zone is good news for the UK," said Paul Robinson, head of European FX research at Barclays Capital, referring to the Spanish bill auction and ZEW survey.
Data showed UK inflation inched up to 3.5 percent in March from 3.4 percent in February, and boosted sterling by reinforcing speculation the Bank of England will not inject more stimulus into the economy next month. Sterling was up 0.3 percent at $1.5945, retreating from a day high of $1.5972 on selling by Swiss and US investors, dealers said.
It met strong resistance from the 200-week moving average around $1.5958, and technical strategists said a weekly close above this level would be a strong bullish signal. The euro was last down 0.3 percent to 82.40 pence, with the Spanish auction results helping it pare some losses after falling to a session low of 82.31. The common currency hovered within sight of Monday's 19-month low of 82.10 pence, but strong support for the euro was seen at the psychologically important 82 pence level.