LONDON Sterling edged up against the dollar on Wednesday, helped by stronger UK data which has lowered the chances of further monetary easing by the Bank of England next week.
The pound rose for a second straight day, trading 0.2 percent higher at $1.6104, having hit a session high of $1.6137 on Tuesday and not far from last week's peak of $1.6144.
Near-term support is seen at its 55-day moving average of $1.6027 with bids from Asian central banks cited at around $1.6080 and $1.6050.
Market players will keep an eye on Britain's Purchasing Managers' Index data on manufacturing, construction and services due this week and next for an indication of economic health into the fourth quarter.
"If the PMI data were significantly below consensus, you would see markets moving towards a more aggressive QE forecast and sterling will be in for tougher times until the Bank meeting next week," said Tom Levinson, FX strategist at ING, who are expecting the Bank to announce more stimulus next week.
He added there was a danger the markets got too carried away with stronger-than-expected GDP figures last week and a soft PMI survey could increase the chances of the Bank easing policy next week considerably.
While firm activity data would lift sterling broadly, disappointing numbers could push the pound back towards the $1.60 mark. Technically, though, charts were suggesting more gains in the pound against the dollar in the near term.
Stronger-than-expected consumer credit, mortgage data and CBI retail sales data have added to a brighter picture of the UK economy. Data last week showed the UK leapt out of recession in the third quarter.
Economists polled by Reuters this week have abandoned calls for further quantitative easing in November and are now expecting the Bank to wait until early next year to print more money.
Some analysts maintained their bullish calls on the pound for the medium term, not expecting it to slip much below $1.60 and recommending buying on dips.
Investors will look at Bank deputy governor Charlie Bean's speech later in the day for hints on policy before next week's monetary policy committee meeting.
Bank policymakers have flagged a weaker outlook for growth in the fourth quarter and market players will focus on the PMI survey data to check whether a recovery was indeed taking hold.
British consumer confidence fell to a six-month low in October, a survey by researchers Gfk NOP showed on Wednesday.
The euro fell 0.1 percent against the pound and was trading at 80.53 pence, with month-end demand for euros from a European central bank going through smoothly.
Beyond these flows, investors are positioning for a weaker euro in coming weeks and many expect it to drop towards recent lows of 80.02 pence struck last Friday.
Concerns about if and when Spain would ask for a bailout and relentless uncertainties about Greece will weaken the euro against sterling in the near team, strategists said.
"We expect euro/sterling to drift lower to 80 pence in the coming weeks because, while the UK economy is showing signs of a recovery, growth in the euro zone, especially Germany, looks to be in a downtrend," said Richard Driver, currency strategist at Caxton FX.
Latest data from the Swiss National Bank showed it had cut its exposure in euros from 60 percent to 48 percent while raising its holdings in sterling to 7 percent from 3 percent in the third quarter.
(Editing by Ruth Pitchford)