Sterling up on improved risk appetite, gains seen capped
(Adds quote, updates prices)
* Pound rises 0.2 pct vs dollar, resistance at 200-day MA
* BoE minutes on Wed could give boost
* Euro/sterling rises past offers in 83.40/50 area
* Greek aid hopes, China easing underpin gains
LONDON, Feb 20 (Reuters) - Sterling held firm near recent highs against the dollar on Monday, helped by better risk appetite and signs of an economic recovery in the UK, although it lagged the euro and growth-linked currencies.
Traders said they were wary of pushing sterling much higher given worries that the nascent UK economic rebound could stutter and the Bank of England would have to pump more funds into the economy. The UK's close trade links and the high exposure of its banks to the euro zone would also check gains.
Underpinned by better global risk sentiment on expectations a Greek aid deal will be approved later on Monday and after China cut banks' reserve requirements, the pound was up 0.2 percent at $1.5873, extending gains into a third straight session. It had risen to $1.5880 earlier in the day, its highest since Feb. 9.
Many expect it to face strong resistance around $1.5915, the 200-day moving average, which the pound has failed to break above since October. Traders cited decent offers around $1.5900 while near-term support was at its 100-day moving average of $1.5689.
"Cable feels perky with the 'risk-on' scenario helping," said a London based spot trader. "The 200-day moving average target has to be overcome first with stops above $1.5930 area. We are still a bit sceptical about this risk-on trade."
Option barriers at $1.5950 and $1.6000 could also sway trade, traders said.
Sterling underperformed the euro, with the single currency rising past sizeable offers in the 83.40-50 pence area to trade at 83.60 pence, up 0.6 percent on the day. Traders said if the euro closes above its 55-day moving average of 83.56 pence, more gains could be in store.
The Chinese central bank in a surprise move cut the amount of cash banks must hold in their reserves on Saturday, in an effort to spur the world's second-biggest economy. That sparked a broad rally in riskier assets like stocks and higher-yielding currencies.
While sterling's recent moves have been dominated by developments in Greece and signs of improved UK data, including better-than-expected retail sales numbers, traders said it would take its cue from the minutes of the Bank of England's (BoE)latest monetary policy committee meeting, due out on Wednesday.
Mansoor Mohi-uddin, head of foreign exchange strategy at UBS, said the pound could get a boost from the minutes as they may show two members of the rate-setting committee voting for fewer asset purchases.
But he is wary of rallies in sterling as UK unemployment remains sticky above 8 percent and inflation may undershoot the BoE's target of 2 percent inflation over the medium term.
"While we think euro/sterling is a sell on rallies given risks from the euro zone and maintain our end-year 80 pence target, we are wary of rallies in cable and think current levels of $1.58-1.59 remain unsustainable," he added.
Commodity Futures Trading Commission data released on Friday showed speculators added to bearish sterling positions in the week to Feb. 14, suggesting some scope for a short-covering rally in the near term.
Also, if risk appetite held up in coming days, analysts said the improved sentiment along with the BoE minutes could see sterling test its Feb. 8 high of $1.5929.
"Even though the BoE extended the QE target this month, it seems very likely that the February minutes will extend the slightly less dovish theme further," said Jane Foley, senior currency strategist at Rabobank.
"Another boost to risk appetite is likely to undermine the dollar and see cable pushing back to the 2012 high at $1.5929." (Reporting by Anirban Nag; Editing by John Stonestreet and Susan Fenton)
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