(Updates prices, adds fresh quote)
* Pound down 0.4 pct against dollar after Friday's 5-wk high
* Weak UK data weighs ahead of ECB, BoE meetings
* Markets await further signals on ECB rescue plan
By Michael Szabo
LONDON, July 30 Sterling lost ground against the
dollar on Monday, in line with a broadly weaker euro, as poor UK
data coupled with investor unease over whether the European
Central Bank will me e t market expectations to support the euro
The euro zone is the UK's biggest trading partner and
investors are hoping the ECB will announce bold measures when it
meets this week to stem the euro zone debt crisis. If the ECB
meets expectations, it could boost risk appetite and sterling,
but if it fails to deliver, assets which have a robust
relationship with stocks could suffer.
The pound lost 0.4 percent against the dollar to
$1.5685, retreating from a five-week high of $1.5768 hit on
Friday, which marked the end of a two-day, 1.6 percent rise.
Traders cited an option barrier at $1.5800 that could check
Against the euro, though, sterling gained 0.3
percent to 78.12 pence, as Europe's single currency faltered on
worries the ECB's meeting on Thursday will turn out to be
"It's getting tougher for sterling It's holding up well
against the euro, but things become a lot less certain towards
the end of the week with quite a weight of expectations around
the ECB," Simon Smith, head of research at FxPro.
"If they do something more aggressive or bolder than before,
that has potential to improve the euro at sterling's expense."
Hopes for action have grown since ECB President Mario Draghi
said last week the bank would do whatever necessary to save the
euro, comments that have ignited speculation the bank could
relaunch its bond-buying programme to help Spanish and Italian
A Reuters poll published on Monday forecast the bank would
probably announce on Thursday that it will re-start the
However, Germany has repeated its opposition to such a step.
Its Economy Minister warned the ECB about any large-scale
government bond purchases and a government spokesman on Monday
reiterated Berlin's opposition to any form of mutualisation of
euro zone debt.
"The market will look for further headlines to continue the
momentum we've seen, but unless we get a continuation of the
comments from the end of last week, euro/dollar will probably
dip lower and cable (dollar/sterling) will probably follow,"
said Jennifer Hau, FX strategist at Lloyds TSB.
RESILIENCE UNDER THREAT
The market has been focused primarily on events in the euro
zone and the United States, where investors are looking for
signs from policymakers of further quantitative easing, but a
steady stream of worse-than-expected UK economic data has made
the recently resilient pound look increasingly vulnerable.
Bank of England data on Monday showed British mortgage
approvals and lending slumped in June, echoing broader economic
weakness last month that was blamed in part on extra public
holidays and very wet weather.
Consumer lending, such as credit card borrowing, held up
relatively well, but house purchase activity fell to its lowest
in one and a half years and headline money supply figures showed
their biggest annual drop since records began in 1983.
British retail sales also rose less than expected in July,
Confederation of British Industry data showed.
"These data will nonetheless add to the sense that the
credit environment in the UK has been deteriorating, justifying
the additional policy measures on liquidity and bank funding
that the government and the Bank of England has embarked on,"
RBC Capital Markets' Jens Larsen said in a note to clients.
The BoE's Monetary Policy Committee (MPC) will meet on
Thursday and although analysts predict it will leave its policy
stances unaltered, concerns over a weakening UK economy could
push the bank towards more quantitative easing or even a 25
basis point rate cut later this year.
For a story on sterling's outlook click on
"The MPC will ease further, and so will the ECB. But at the
risk of sounding overly simplistic, ECB rates are close to zero
and have less room to fall," said Societe Generale currency
strategist Kit Juckes.
"Even though we think we will see euro/sterling fall to 75
pence over the next year, we can easily imagine it trading well
above 80 pence in the next month or so."
(Editing by Susan Fenton)