RTRS:Sterling edges up vs dollar, weak economy may cap gains
By Jessica Mortimer
LONDON, Jan 19 (Reuters) - Sterling edged higher against the dollar on Thursday, tracking gains in the euro on hopes the IMF could boost resources to aid ailing euro zone countries, but its rise was limited after weak UK consumer confidence data.
Analysts also expected any rally in the euro to be short-lived, with concerns about euro zone debt woes set to remain. Investors were wary ahead of bond sales by Spain and France due on Thursday.
Meanwhile, a survey showed UK consumer confidence dropped close to its lowest level in seven years in December, adding to worries about a fragile UK economy and the risk of the Bank of England easing monetary policy next month.
Sterling was steady at $1.5429, having hit a one-week high of $1.5455, but traders said it may stall ahead of the 21-day moving average at $1.5482.
"As the dollar has come under pressure this has helped sterling, but I'd say levels in the low $1.54s may be worth selling into," said Jeremy Stretch, currency strategist at CIBC.
"Sterling will probably come under pressure, both from a fundamental perspective and from weakening risk sentiment".
The euro was up 0.2 percent at 83.41 pence, staying well above its recent 16-month low of 82.22 pence. However, it stayed below Wednesday's high of 83.54 pence and was expected to struggle to test last week's peak of 83.76 pence.
The euro's gains were seen limited as investors remain wary of any development that may cause the euro debt crisis to worsen significantly, with market players keeping a close watch on talks aimed at avoiding a messy Greek default.
But analysts said sluggish UK data could put pressure on sterling against the safe-haven dollar in the coming weeks.
Data on Wednesday showed the number of Britons out of work at its highest in more than 17 years in November, although a smaller than expected number of new benefit claims in December provided some hope the labour market may be levelling out.
Recent weak UK data, including lower inflation numbers, have added to expectations the BoE will increase asset purchases under its quantitative easing programme next month.
"Weak UK growth and declining inflation make an extension of QE very likely in February, and this will limit the enthusiasm for sterling," analysts at Lloyds said in a note. (Editing by Anna Willard)
