By Stefano Rebaudo
(Reuters) - Sterling was within striking distance of its 2-week low against the euro and slightly higher versus the dollar on Tuesday as investors were on hold ahead of U.S. data while trying to assess the UK economic outlook.
Markets await British gross domestic product figures due on Friday after data from starting salaries for permanent staff added to signs of a slowdown in the job market and the British Retail Consortium said an early Easter boosted food spending in Britain last month.
Before GDP data, sterling will focus on events outside the UK, including Wednesday's U.S. inflation figures and Thursday's European Central Bank policy meeting.
Sterling was up 0.05% against the euro at 85.76 pence. The single currency hit last week 85.87 pence per euro, its highest level since March 26.
Matthew Ryan, head of market strategy at global financial services firm Ebury, said Friday's data for February may further support the view that Britain has been showing "a recovery in economic activity."
The pound rose 0.1% to $1.2668 versus the dollar which struggled for direction amid caution ahead of Wednesday's data.
"Repatriation by corporates of foreign currency back into sterling to pay dividends can lend support to the currency," said Joe Tuckey, head of forex analysis at Argentex (LON:AGFX).
Investors watched closely market bets on the Bank of England (BoE) and the Federal Reserve policy paths, which do not diverge much as markets priced 67 bps of interest rate cuts by the BoE in 2024.
They have also looked at the UK general election expected this year, with analysts flagging that the pound's volatility versus the single currency remains at low levels after recent polls indicated the Labour Party is far ahead of the ruling Conservatives.
Election prospects are "reminiscent of 1997, where a consistent 20%+ lead in the opinion polls for Labour was no source of drama for sterling," said Chris Turner global head of markets at ING.
Britain's opposition Labour Party has promised to stick with the current Conservative government's target of bringing down debt as a share of economic output between the fourth and fifth year in forecasts produced by Britain's budget watchdog.