LONDON (Reuters) - Sterling edged up against the dollar on Thursday but failed to make much headway because investors are reassessing the optimistic views on the economic outlook that had caused a sharp surge in the UK currency.
Bank of England Governor Mervyn King said late on Wednesday there were some signs the economy was starting to stabilise, but it was too early to remove the huge degree of stimulus from the economy.
Earlier on Wednesday, minutes of policymakers' June 3 and 4 meeting showed they unanimously voted to keep rates on hold and maintain the Bank's 125 billion pound quantitative easing programme, because they judged the better data over the last month had not changed the previous month's dire outlook.
"General risk appetite is continuing to struggle," said Geoffrey Yu, currency strategist at UBS.
"Even though economic numbers have been mixed and policymakers are seeing no reason to revise their current assessment that most global economies are bottoming out, the level of optimism priced into markets is probably still excessive and there are fears of further corrections," he said.
At 8:19 a.m., sterling was up 0.3 percent at $1.6444. The pound was little changed at 84.99 pence after hitting a 6-month low of 84.19 pence earlier in the week.
Data on Wednesday showed a smaller-than-expected rise in jobless claims, but it provided only a temporary boost for sterling.
Market players will keep a close eye on retail sales data due out later in the day.
Economists polled by Reuters expect sales volumes to have risen just 0.4 percent in May, after April's 0.9 percent gain. The annual rate is seen falling 0.2 percent, due to comparison with an unexpectedly strong rise last May.
Separate data on public finances is expected to underline a trend of deterioration because the government has spent massive amounts of money to stimulate the ailing economy.
In his annual Mansion House speech to City of London financiers, King said while there were good reasons to believe that the rapid falls in activity were coming to an end, there were equally good reasons to think recovery could be protracted.
"It is too soon to reverse the extraordinary policy stimulus that has been injected into the UK economy through monetary policy, the provision of liquidity support to banks, guarantees of bank funding, and fiscal policy," he said.
"Nevertheless, it is not too early to prepare for such exit strategies and to explain how they would work."
Faced with rising bond yields that could hamper the recovery as markets worry about inflation risks and the sustainability of public debt, policymakers around the world are stressing they will be ready to reverse easy policy when appropriate.
