* Sterling at multi-month highs versus euro and dollar
* Gains becoming stretched with UK economy in doldrums
* PMI surveys this week could slow pound’s gains
By Neal Armstrong
LONDON, April 30 (Reuters) - Sterling rose to fresh multi-month highs on a trade-weighted basis on Monday as investors continued to view the British currency as a safer bet than the ailing euro and a softening U.S. dollar.
But analysts said the pound’s gains were becoming stretched, given the British economy is mired in recession, which is likely to prevent the Bank of England from tightening monetary policy for the foreseeable future.
Sterling rose to an eight-month high of $1.6298 against the dollar which itself skidded to a two-month low versus a basket of currencies as weak U.S. growth data on Friday reinforced dovish U.S. monetary policy expectations.
“It makes sense that the pound has performed relatively well of late given the shift in interest rate expectations, but it appears to be overshooting now, particularly as the UK is still in recession,” said Lee Hardman, currency strategist at BTM-UFJ.
A less dovish tone in April’s BoE policy minutes reduced the scope for further increases in its asset purchase programme which currently stands at 325 billion pounds.
Latest IMM positioning data reflected the view that more asset purchases were unlikely in the near-term as speculators flipped to a small long position.
“Sterling bears have capitulated but it will take some good news to generate a build-up of long positions, and pave the way for EUR/GBP to push on towards 80 pence,” said Societe Generale in a note.
The euro slipped to a 22-month low of 81.24 pence with worries over euro zone debt markets, notably Spain, keeping investors on edge over the common currency.
Sterling’s next target against the euro is the June 2010 high of 80.67 pence. Beyond there would take it to levels not seen since the aftermath of the Lehman Brothers’ collapse in autumn 2008.
With the euro accounting for more than half of sterling’s trade-weighted index, Bank of England data showed the pound trading at a fresh 32-month trade-weighted high of 83.5.
An absence of UK economic data on Monday left the focus on economic sentiment surveys to be released later in the week.
“Indications that the sentiment indicators declined more than expected in April could undermine to a degree market confidence that the UK growth figures will be revised significantly to the upside in coming weeks,” said Valentin Marinov, head of European G10 fx strategy at Citi.
“In turn, renewed growth concerns could erode some of the interest rate advantage of sterling,” he added. (Editing by Toby Chopra)