Sterling gains vs dollar, falls vs euro on Greek hopes
LONDON (Reuters) - Sterling rose against the dollar on Monday as expectations Europe would agree a second Greek bailout package lifted risky assets, though it lagged the euro and growth-linked currencies.
Recent data have pointed to signs of recovery in the UK but traders remained wary of pushing the pound much higher due to concerns any economic rebound could stutter and prompt the Bank of England to pump more money into the economy.
Concerns about the UK's close trade links and the high exposure of its banks to the euro zone were also expected to check sterling's gains.
Euro zone finance ministers are expected to approve aid for Greece at a meeting on Monday, enabling the country to avoid a disorderly default, though concerns were likely to remain about how any plan would be implemented.
"If the Eurogroup meeting goes well then both the euro and sterling will gain some ground on the dollar. Some of that is still in the price so we will not really see pronounced gains," said Valentin Marinov, currency strategist at Citi, adding that sterling may retest $1.5930.
"The chances are the euro will outperform sterling, at least for now, but it is difficult to say how much higher it will go. I suspect euro/sterling will remain rangebound, but over the longer term the risks are on the downside."
Sterling was up 0.2 percent against the dollar at $1.5862, extending gains into a third straight session, having risen as high as $1.5880, its strongest in more than 10 days. Its next target was the February 8 high of $1.5929.
The pound was expected to face strong resistance around $1.5915, the 200-day moving average, which it has not broken above since October. Traders cited decent offers around $1.5900 while near-term support was at its 100-day moving average of $1.5689.
"Cable feels perky with the 'risk-on' scenario helping," said a London based spot trader. "The 200-day moving average target has to be overcome first with stops above $1.5930 area. We are still a bit skeptical about this risk-on trade."
A move by China over the weekend to cut banks' reserve requirements in an effort to spur the world's second-biggest economy also helped a broad rally in riskier assets like stocks and higher-yielding currencies.
The euro was up 0.7 percent at 83.58 pence, having risen past sizeable offers in the 83.40-50 pence area. Traders said if the euro closes above its 55-day moving average of 83.56 pence, more gains could be in store.
Sterling's recent moves have been dominated by developments in Greece and signs of improved UK data, including better-than-expected retail sales numbers. However, this week it may take its cue from the minutes of the Bank of England's latest monetary policy committee meeting, due on Wednesday.
Mansoor Mohi-uddin, head of foreign exchange strategy at UBS, said the pound could get a boost from the minutes as they may show two members of the rate-setting committee voting for fewer asset purchases.
But he was wary of rallies in sterling as UK unemployment remains sticky above 8 percent and inflation may undershoot the BoE's target of 2 percent inflation over the medium term.
"While we think euro/sterling is a sell on rallies given risks from the euro zone and maintain our end-year 80 pence target, we are wary of rallies in cable and think current levels of $1.58-1.59 remain unsustainable," he added.
Commodity Futures Trading Commission data released on Friday showed speculators added to bearish sterling positions in the week to February 14, suggesting some scope for a short-covering rally in the near term.
(Additional reporting by Anirban Nag; Editing by Catherine Evans)
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