By Samuel Indyk
LONDON (Reuters) - The British pound held in a relatively tight range against the dollar on Monday as markets weighed up last week's mixed data releases and their impact on monetary policy.
The pound was last little changed at $1.2708, in the middle of the $1.2597-$1.2825 range it has traded in since December 14.
Britain's annual rate of consumer price inflation sped up for the first time in 10 months last month, official data showed last week.
But retail sales slumped 3.2% in December, the biggest fall since January 2021, and there were further signs of a loosening labour market as British wages grew at their slowest pace in almost a year, the Office for National Statistics said.
"The small upside surprise across inflation measures last week likely implies that BOE (Bank of England) communication will remain on the hawkish end of the spectrum for longer," said Barclays (LON:BARC) FX strategists in a note.
Money market traders are pricing around a 60% chance that the BOE cuts interest rates in May, with the first 25 basis point reduction fully priced by June. The market expects around 105 basis points of easing this year.
In contrast, markets are fully pricing the first move from the Federal Reserve in May and around 135 basis points of cuts in 2024.
The pound was up around 0.2% at 85.66 pence per euro. Last week, it hit its strongest against the single currency since Dec 11, at 85.55 pence.
More data on the state of both Britain's and the euro zone economy is scheduled on Wednesday, with the release of the preliminary Purchasing Managers' Indexes for January, which ING strategist Chris Turner says could give a lift to sterling.
"PMIs have been pretty robust in the UK," said Turner.
"Unless we see a sharp rebound in the euro zone PMIs this week then I think the continued divergence in the PMIs between the UK and the euro zone can continue to support the pound," he added.