LONDON (Reuters) - Sterling rose on Monday as the dollar weakened against its rivals and investors bought back the pound ahead of unemployment and wages data, which sterling bulls hope will help the currency recover now that any interest rate hikes look further away.
The pound rose 0.4 percent against the dollar to $1.3595 at 1500 GMT, off last week’s four-month lows of $1.3460 but a long way from the more than $1.43 sterling was trading above as recently as April.
Against the euro sterling strengthened 0.2 percent to 88.045 pence per euro.
The pound tumbled in the run-up to a Bank of England decision last Thursday to keep rates on hold, and cuts to the central bank’s economic growth and inflation projections for this year and next sent sterling even further lower.
The BoE decision left traders sceptical about whether the central bank will hike rates at all this year.
Market expectations of a rate hike in August are currently below 50 percent compared with nearly 60 percent at the start of last week amid worries about the health of the economy.
“The UK economy just feels a little bit fatigued. But rates are very low and wages might pick up,” said Paul O’Connor, head of the multi-asset team at Janus Henderson Investors.
“If anything, I’d be looking to buy sterling. We are getting to more interesting levels now.”
On Tuesday data on the British labour market will keep traders busy and should offer some insight into whether inflation is feeding through to higher wage growth, a likely prerequisite to any BoE hikes.
Analysts at ING said that the chances of a summer interest rate hike were being underestimated and that strong unemployment data could send the pound on a trajectory towards the $1.37 to $1.38 range.
“An overall solid UK jobs report would go a long way to rekindling some of the lost BoE policy tightening sentiment in recent weeks,” said ING FX strategist Viraj Patel, in a note to clients.
Reporting by Tom Finn and Tommy Wilkes; Editing by Alison Williams