Data showing UK manufacturing activity grew at its fastest pace in more than a year last month lifted sterling to its highest in more than two weeks against the dollar on Monday. This contrasted with an equivalent survey revealing an unexpected contraction in the US factory sector, which pushed the dollar lower and boosted the pound further.
Sterling rose by more than 0.6 percent to $1.5293, its strongest since May 16 and traders said stop-loss buy orders would be triggered on any break above $1.5300. It faced chart resistance at $1.53 and the May 16 peak of $1.5323. The UK purchasing managers' index on manufacturing rose to 51.3, well above forecasts for 50.2 and the 50 level that separates growth from contraction.
Analysts said the pound could get a further boost if equivalent surveys on construction and the dominant services sector on Tuesday and Wednesday add to signs of a recovering UK economy in the second quarter. But the pound's gains were ultimately expected to be limited by concerns incoming Bank of England governor Mark Carney - who takes the helm in July - may opt for more stimulus.
"The backdrop is cautiously optimistic for sterling in the short term," said Jeremy Stretch, head of currency strategy at CIBC, though he expected it to struggle to break above $1.53. The pound rose against the euro, which was down 0.4 percent at 85.12 pence, having earlier hit 85.025 pence, its lowest in more than a week. This took the euro well below last week's peak of 85.985 pence, its strongest since mid-April.
The euro could come under selling pressure before a European Central Bank meeting on Thursday, although most economists do not expect the bank to cut the deposit rate or its refinancing rate again in the coming months. The Bank of England is also expected to leave policy unchanged on Thursday. Analysts at Morgan Stanley said they viewed any gains to around $1.5290 as a "strong selling opportunity", adding they expected UK manufacturing growth to be "relatively muted" in the second quarter.