Pound struggles around $1.20 on economy worries

LONDON (Reuters) -Sterling held around the $1.20 level versus the U.S. dollar on Monday as traders worried about the outlook of the British currency after recent dismal data before a widely expected U.S. interest rate hike this week.

Versus the U.S. dollar, the pound held around $1.2040, a shade below Friday’s high of $1.2064 which was the highest level in nearly three weeks. It briefly rose half a percent to the day’s highs at $1.2085 before retracing its gains.

Against the euro, the pound was steady at 85.02 pence.

“The UK post-pandemic recovery is lagging rest of the G10 economies and inflation is likely to prove stickier due to Brexit, complicating further BoE’s policy,” Citibank strategists said in a client note.

Britain’s businesses grew at their slowest pace in 17 months in July and inflation pressures eased, according to an industry survey last week.

Britain’s economy is feeling the strain of inflation which is on course to hit double digits, driven in large part by sky-rocketing fuel prices.

Although consumer spending and businesses are struggling, the Bank of England is widely expected to raise interest rates by 50 bps at a policy meeting on Aug. 4.

Latest positioning data show investors have consolidated their bearish bets on the pound at $4.3 billion, not far from a near two-year peak of $6.2 billion in May.

Investors widely expect the Fed to raise interest rates by another 75 bps when it concludes a two-day policy meeting on Wednesday.

(Reporting by Saikat Chatterjee; Editing by Ed Osmond)