June 13, 2011 / 12:25 PM / 9 years ago

Sterling gains as focus turns to UK inflation data

* Sterling rises vs euro; supported above 100-DMA vs USD

* UK CPI data ahead on Tuesday; BoE’s Weale speaks later

* BoE’s Dale: inflation expectations still a concern

* Euro under pressure on concerns about Greece

LONDON, June 13 (Reuters) - Sterling rose on Monday, hitting its strongest in more than a week against the euro, helped by euro zone debt concerns and as investors positioned for data on Tuesday that is expected to show elevated UK inflation.

Against the dollar, sterling also rose and looked supported near-term, staying above its 100-day moving average at $1.6246 and well above a low of $1.6215 hit on Friday in response to figures showing a sharp contraction in UK industrial output.

However, analysts said concerns about a fragile British economy left the pound vulnerable to further falls. Technical analysts said a sustained move below the 100-day average would see it target the late May low of $1.6055 and then $1.6000, which coincides with the 200-day moving average.

Annual CPI is forecast to be unchanged at 4.5 percent in May. A number above this would boost the pound, but analysts said gains would not be sustained unless investors believe the Bank of England will respond by raising rates. ECONGB

“If inflation is higher we’re likely to see sterling gain but it will probably be short-lived,” said Lee McDarby, head of dealing for corporate and institutional treasury at Investec.

“The market needs to see a sustained uptick in data before there is any real talk of interest rates rising”.

Sterling was up 0.4 percent versus the dollar at $1.6304 GBP=D4, having hit a high of $1.6324, just above its 21-day moving average.

“Technical indicators on sterling/dollar are showing a mixed performance. It has been in an uptrend for most of this year but much below here and it could be heading towards $1.60.” said Kathleen Brooks, research director at FOREX.com.

The euro EURGBP=D4 fell 0.4 percent at 88.12 pence, its weakest since June 2, nearing its 55-day moving average around 88.10 pence.

The euro was pressured as European policymakers appeared no closer to finalising an agreement over whether private investors would take part in a restructuring of Greek debt. [ID:nLDE68T0MG]

Data from the Commodity Futures Trading Commission showed speculators more than doubled net long euro positions in the week to June 7 while they retained a small net short position in sterling. This suggests the euro may be vulnerable to falls as investors take profit on long positions. [IMM/FX]


Sentiment towards sterling could take a knock later in the week, as jobs data on Wednesday and retail sales numbers on Thursday could add to concerns about a faltering UK economy. [ID:nLDE7591VV]

On Monday, BoE policymaker Martin Weale will speak at 1800 GMT. Weale has voted to raise interest rates since January and the speech will be watched for any chance he may soften his stance.

BoE chief economist Spencer Dale, who has also voted for a rate hike, said in the BoE’s quarterly bulletin that inflation expectations are a key concern and that policymakers cannot be totally sure that they remain well-anchored. [ID:nLDE7591VP]

Weak UK economic data has caused expectations for when the BoE will start raising rates to be pushed back. Markets are not fully pricing in a 25 basis point hike until at least April next year, expecting that a weak economy will outweigh concerns about inflation. BOEWATCH ICAPSONIA

“If tomorrow CPI fails to come in above last month’s 4.5 percent reading and retail sales is weaker than forecast, euro/sterling may struggle to go lower,” analysts at BNP Paribas said in a note.

Reporting by Jessica Mortimer

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