LONDON Sterling rose against a broadly weaker dollar on Monday, recovering ground lost last week as investors braced for a busy week with the latest top-tier UK economic data releases and Bank of England policy meeting.
Britain's benchmark 10-year government bond yield topped 1.50 percent on Monday for the first time since May, increasing sterling's appeal.
At the same time, the dollar retreated on concerns the U.S. Federal Reserve, widely expected to raise interest rates on Wednesday, may also express concern that the greenback's gains have gone too far. [FRX/]
In late European trade, sterling was up 0.7 percent at $1.2661 and the euro was down 0.4 percent at 83.65 pence.
Sterling chalked up its first weekly fall against the dollar in four last week, falling 1.1 percent as British lawmakers said they would stick to Prime Minister Theresa May's timetable for Britain leaving the European Union, dampening investors' hopes for a delayed Brexit.
This week's UK economic calendar opens on Tuesday with November's inflation figures, which are expected to show a slight rise to 1.1 percent. Prices are expected to spike much higher next year as sterling's weakness feeds through.
The pound is trading about 15 percent lower against the dollar after Britain voted in June to leave the EU, and about 10 percent weaker against the euro.
Unemployment and average earnings numbers follow on Wednesday before retail sales and the BoE rate decision on Thursday..
ING currency strategist Viraj Patel said he expected signs of a slowdown in the real economy to show through in the first half of next year.
"This week could potentially be the start of that sort of story," he said.
The BoE is expected to refrain from changing rates or its quantitative easing bond buying programme this week, but investors will closely scrutinise comments from governor Mark Carney on the outlook for the coming months.
"They are probably going to have to start leaning to the more dovish side so we think the balance of risks is for them to cut again," said ING's Patel.
(Reporting by Jamie McGeever and Nigel Stephenson; Editing by Alison Williams)