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Sterling falls back from seven-month high hit in early trade

Illustration shows British Pound banknotes

LONDON (Reuters) -Sterling retreated on Monday from a seven-month high against the dollar hit in Asian hours, having been helped last week by data showing the British economy was performing better than feared, which also drove expectations of more interest rate hikes.

The pound hit $1.24475 in early trade, its highest since June 10. Moves were exacerbated by thin liquidity due to the Lunar New Year holidays in major financial centres such as Hong Kong and Singapore.

The British currency was last down 0.32% at $1.2359, and lost more ground against the euro, which rose 0.5% to 88.05 pence.

"(The June high) is an important technical level, if we see a sustained break for cable (sterling/dollar) past that level then that opens the door for further upside, but if this resistance level holds, we could see some consolidation," said Lee Hardman, senior currency analyst at MUFG.

"The pound was one of the best performing currencies last week on the back of expectations of a 50 basis point hike due to data generally pointing to a more resilient UK economy and upside inflation risks," Hardman said.

Market pricing indicates a 70% chance of a 50 basis point rate increase at the Bank of England's February meeting. A 25 basis point hike is fully priced in, according to Refintiv data

British inflation eased to 10.5% last month, data released on Wednesday showed, after hitting a 41-year high in October, But policymakers have warned of continued upward pressure on inflation from a tight jobs market.

Core CPI, which excludes energy, food, alcohol and tobacco, and which some economists view as a better guide to underlying inflation trends, was unchanged at 6.3%.

(Reporting by Alun John, editing by Ed Osmond and Mark Potter)