LONDON: Sterling rose against a weaker euro and edged down against the dollar on Monday, staying close to a four-and-a-half month high against the U.S. currency, which was kept in check by the Federal Reserve's new asset purchase programme. The UK currency was unmoved by inflation data that did not change the balance of expectations over whether the Bank of England will increase its own asset buying programme later this year. The pound was slightly weaker on the day at $1.6232 but still in sight of Monday's peak of $1.6276, its strongest since late April. Many analysts say sterling is poised for more gains after the Fed announced a new bout of aggressive quantitative easing (QE) last week, which increases the supply of a currency and typically cheapens it. But traders said it may struggle to make more gains in the short term given strong chart resistance at the 2012 high of $1.6304, with interest to sell it just below that level. Earlier data showing UK inflation dipped slightly in August despite a rise in oil and fuel costs kept alive prospects of the BoE injecting more cash into the economy later this year. The pound has been underpinned by better UK data in recent weeks, which has eased concerns about the growth outlook. "Sterling has been holding up well. UK data has been better of late and it's a guessing game on whether or not the Bank of England will undertake more QE," said Richard Wiltshire, chief FX broker at ETX Capital. "QE in the U.S. will still be the driving factor and you'd assume the dollar will remain on the back foot, whereas the uncertainty about whether the BoE will do more QE should keep sterling bid." The pound outperformed the euro, which was down 0.35 percent at 80.43 pence. The common currency pulled away from a three-month high of 81.14 hit on Friday, hampered by a German sentiment survey and uncertainty over when or whether Spain will ask for financial aid. Traders said it could extend its falls if it breaks below reported stop loss sell orders below 80.35 pence. A poll of German analyst and investor sentiment by think tank ZEW revealed a rise in September, though the euro edged lower as the ZEW said it expected Europe's largest economy to lose momentum over the next six months. Still, the euro remained above the psychologically important 80 pence level, buoyed after the European Central Bank announced a bold plan to lower the borrowing costs of highly indebted euro zone countries earlier this month. The BoE will release minutes of its latest monetary policy meeting on Wednesday, which will show the balance of views on further stimulus. Most analysts do not expect any further easing before November. "Sterling has had a fantastic run-up though it could get sticky towards the April high around $1.63. But if it clears that the next major hurdle is $1.64/$1.65," said Kathleen Brooks, research director at FOREX.com.

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