Sterling rose against the dollar on Tuesday as demand for perceived riskier currencies improved, although it lagged the euro on concerns that slowing UK inflation will give the Bank of England more room to ease policy. The pound rose to $1.6120, trading above last week's one-month low of $1.5975 but still well below the late September peak of $1.6310. Offers to sell were cited at $1.6150 with near-term support at $1.6020, the low struck on Monday.
But it underperformed the euro. The single currency was 0.5 percent higher at 81 pence, rising to a one-month high of 81.02 pence with resistance at its 200-day moving average of 81.13 pence. The single currency continued to hold well above chart support at Thursday's low of 80.23 pence and the 21-day moving average at 80.22 pence, helped by an improvement in the German ZEW's economic sentiment survey and speculation that Spain would ask for financial aid soon.
In the UK, consumer price inflation in September rose 0.4 percent from a month ago, in line with expectations, but slowing from a 0.5 percent rise in August. For the year, inflation rose 2.2 percent in September, lower than the 2.5 percent annual rise seen in August and also in line with forecasts. "Today's data was so in line with expectations we didn't see too much reaction in cable even though it makes more QE in November a bit more likely," said Kathleen Brooks, research director at FOREX.com. "The pound is very sensitive to big data surprises in the UK. If we get a miss (on employment data) it would be very negative for sterling and edge off back to the $1.60 level."
Of late, the jobs market in the UK has shown signs of a recovery despite a recession. Analysts expect the jobless rate to remain steady at 8.1 percent for August when data is released on Wednesday. Traders are also wary about the pound given data later in the week - including retail sales figures as well as Bank of England (BoE) minutes - may add to the risk of the central bank opting for more asset-buying quantitative easing (QE) next month.