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Sterling holds up against nervous euro, eyes on CPI and retail data
[LONDON] Sterling edged up on Monday, extending its winning streak against the euro for a sixth straight day after enjoying a boost from last week's better-than-expected manufacturing and trade data.
The pound was up over 0.3 per cent against the US dollar and steady against the euro which has been hit by nerves around a pickup in political uncertainty in Europe and the ongoing standoff in Greek bailout talks.
"We're looking for the pound to trade relatively well in the near term with upside against the euro in particular," said MUFG currency economist Lee Hardman.
"There's a lot of political risk coming up in Europe with elections in France and later in the Netherlands, Germany and Italy and after the unexpected results from Brexit and the US elections last year, the market has learned to become a little more nervous ahead of those events."
Investors will be watching the release of British inflation and retail data this week to see how sentiment is holding up and whether an expected weakness in December was temporary or the start of a weakening trend for consumer spending ahead.
"We expect to see rising CPI and weaker retail sales," Kathleen Brooks, research director at City Index said in a note.
"Overall, that could be a toxic mix for the pound, especially if rising prices are seen to be already restraining consumption."
A number of forward-looking indicators of sentiment have dipped in the past 10 days, stirring nerves among investors that a weakening of growth predicted by many economists since the vote to leave the EU last June is finally materialising.
But manufacturing output rose 2.1 per cent in December, far higher than the 0.5 per cent rise forecast in a Reuters poll. And compared with December 2015, it was up four per cent, the strongest increase since April 2014.
Sterling was trading at just over US$1.25 at 0840 GMT and around 85 pence to the euro, sticking to the levels that saw its best week against the latter in over three months last week.
While the pound's moves since June show a preoccupation with the UK vote to exit the European Union, MUFG's Hardman doesn't buy speculation that triggering Article 50 to begin the formal process could justify another leg lower in the currency.
"It's kind of a formality," he said.
"It's pretty obvious that the UK is going to be leaving the EU and it's just a matter of when those negotiations start."