LONDON Sterling rose against the euro for a sixth straight day on Monday, chalking up its best run in over four months as the euro zone currency struggled to shake off French political worries and Greek debt strains.
The pound still had the tailwind of last week's better-than-expected manufacturing and trade data and figures this week will show how inflation and confidence among Britain's shoppers are holding up.
Sterling nudged back up to $1.25 against the dollar but climbed a more forceful 0.5 percent against the euro to take it to a two-week high of 84.80 pence and putting the start of the year's 84.50 pence marker in its sights.
"We're looking for the pound to trade relatively well in the near term with upside against the euro in particular," said MUFG currency economist Lee Hardman.
"There's a lot of political risk coming up in Europe with elections in France and later in the Netherlands, Germany and Italy and after the unexpected results from Brexit and the U.S. elections last year, the market has learned to become a little more nervous ahead of those events."
Greek debt worries have also resurfaced for the euro. The head of the International Monetary Fund Christine Lagarde told Reuters on Monday the Fund would do its best to agree on a bailout but could not compromise its principles.
UK-focused investors meanwhile will be watching British inflation data on Tuesday and retail sales figures on Thursday following some mixed signals in recent weeks.
A number of forward-looking indicators of sentiment have dipped in the past 10 days, stirring nerves that a weakening of growth predicted by many economists since the vote to leave the EU last June is finally materialising.
But British manufacturing output rose 2.1 percent in December, figures showed last week, far higher than the 0.5 percent rise forecast. And compared with December 2015, it was up 4.0 percent, the strongest increase since April 2014.
"We expect to see rising CPI and weaker retail sales," Kathleen Brooks, research director at City Index, said in a note.
"Overall, that could be a toxic mix for the pound, especially if rising prices are seen to be already restraining consumption."
Reuters polls are forecasting that British factory input prices also released on Tuesday, will show a searing 18.3 percent year-on-year increase In January.
That would be the highest level since 2008 - and could spell trouble ahead for British manufacturing. As the following graphic shows - bit.ly/2lHPptw - factory input prices have tended to hurt manufacturing investment in recent years.
Over the last month though, sterling has risen over 4 percent against the euro, the dollar and the yen making it one of the top FX performers of 2017 so far.
"We were heavily underweight (on sterling) but we have now eased that to a neutral stance," said Lombard Odier's Chief Investment Strategist Salman Ahmed.
(Additional reporting by Marc Jones; editing by Andrew Roche)