* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Patrick Graham
LONDON, May 16 Sterling inched back towards the
top of its recent range against a broadly weaker dollar, though
it again looked short of the power to push past $1.30 ahead of
inflation numbers due at 0830 GMT.
The Bank of England weakened the pound last week by cutting
its forecasts for the UK economy and pushing out its assumption
for when it will raise rates to the end of 2019 - assuming
Britain's exit from the European Union goes smoothly.
That involves it looking through a rise in inflation past
its 2 percent target that has raised concerns over its likely
impact on the consumer spending power that has kept UK growth
going through a year of political turmoil.
Analysts said the forecast jump in inflation to 2.6 percent
would still be in line with the Bank's own expectations and may
not be enough to drive sterling past through resistance below
$1.30 that has held for a month.
"There were a few hawkish takeaways from the inflation
report last week but the market wasn’t convinced about the
legitimacy of the Bank’s assumptions of a smooth Brexit and an
increase in wage inflation and failed to respond," said Rabobank
strategist Piotr Matys.
After a late dip in the previous session, sterling was up a
quarter of a percent at $1.2929 and 85.28 pence per
euro in morning trade in London.
The biggest news so far this week has been a shift in
futures market positioning data, showing bets against the pound
were cut by the third most ever last week and are now less than
half of a series of record highs hit over the past seven months.
That - stemming from a bounce for the pound after the
announcement of a surprise election last month - would seem to
mark a sea-change in investors' approach to the currency.
Yet it has struggled to make further progress and many major
banks remain unconvinced the market can ride out 18 months of
potentially bruising Brexit negotiations unscathed.
"Will the CPI data, followed by unemployment and wages
tomorrow, then Easter-boosted retail sales on Thursday, prompt
fears of increased MPC hawkishness? It's just about possible,"
said Societe Generale analyst Kit Juckes.
"But the pound has clearly risen against the dollar much
more than would appear justified by yield differentials ...
Still, the next three days are likely to see the last of the
sterling short-covering rally."
(Editing by Andrew Heavens)