M&A news helps keep sterling bid, retail numbers eyed

By Patrick Graham

LONDON, April 22 (Reuters) - Sterling crept up to a six-week high against the euro on Tuesday and held within sight of its 2014 high against the dollar, helped by the latest round of corporate asset sales.

Britain runs a substantial current account deficit but has been able to fund it with the help of inflows into gilts and other UK-based securities, allowing the pound to move higher over the past year.

Capital (Other OTC: CGHC - news) from Vodafone's sale of its main U.S. business were cited as a major reason sterling gained in the first quarter of 2014. Cash flowing to Glaxo Smithkline from a deal with Swiss drugmaker Novartis (Xetra: NOT.DE - news) are minimal by comparison but underline the benefits Britain may see from a surge in mergers and acquisitions.

"The big picture here is that the pound has been performing very strongly," said Steven Saywell, global head of FX strategy at BNP Paribas (Milan: BNP.MI - news) in London. "It is one of our top trades going forward, although we would tend to veer away from it against the dollar in favour of trading it against the euro and other crosses."

The pound rose 0.2 percent against the euro to 82.10 pence in early trade and at $1.6817 also inched back up from the close of U.S. trading before the long Easter weekend.

Elsewhere on major currency markets, the euro was hovering near a two-week low against the dollar as expectations the European Central Bank will try to halt any further strengthening kept investors away from the single currency.

After a 10 percent surge over 12 months on a trade-weighted basis, the pound had stalled in the past six weeks as doubts over the structure of improving economic growth crept in.

Some analysts said more improvement may be difficult to come by this week before March retail sales numbers, which will struggle to match highs from the turn of the year.

"Despite much better weather with the later Easter this year, it is reported that high street footfall fell by over 10 percent on Easter Sunday compared to last year," South African bank Investec (LSE: INVP.L - news) wrote in a note to clients.

"The pound is likely to remain range-bound in the current environment but will be sensitive to breaks above 1.6870 and 1.2240 against the dollar and euro respectively, to potentially trigger the next leg of the pound rally."

Expectations an improving economy will prompt the Bank of England to raise interest rates in the first half of next year have been at the centre of the pound's gains. BoE (Shenzhen: 000725.SZ - news) minutes on Wednesday will also provide the latest food for thought on whether the bank is really likely to deliver before general elections next May. (Editing by Larry King)