Sterling treads water ahead of UK budget, jobs and wages data

By Patrick Graham

LONDON, March 17 (Reuters) - Sterling trod water on Monday, with news of a European acquisition by Vodafone failing to shift it out of a recent tight range, and players looked to jobs data, a budget statement and a U.S. central bank meeting this week for direction.

After a bullish run since the middle of last year, more doubts have emerged about the pound this month, with many analysts saying the improvement in the UK economy and the prospect of an interest rate rise next year are well priced-in.

That is making it harder for the currency to gain more on the back of even relatively robust numbers like the 3-5 percent annual rises in construction and industrial output shown by official data last week.

Another factor in the pound's rise has been Vodafone's sale of its main U.S. business for $130 billion, inflows from which are now largely seen as complete. The company confirmed on Monday it will use some of the resulting spare cash to buy Spain's ONO for 7.2 billion euros ($10 billion).

The timeframe, however, is unclear and analysts are more concerned by sterling's failure more than once to push higher than $1.68.

"We certainly think there is scope for a pullback from here," said Kathleen Brooks, head of research with Forex.com.

"Sterling is still strong but we have seen a double top forming and we seem to be very much stuck in a holding pattern now, looking for a new direction."

Sterling was a touch lower versus the dollar than Friday's U.S. close at $1.6626, and it rose less than 0.1 percent against the euro to 83.58 pence.

All of the week's key scheduled events are on Wednesday.

UK unemployment and wage numbers may shine as much new light on the outlook for monetary policy as Bank of England minutes, expected to show the bank still in wait and see mode on the strength of Britain's economic upturn.

The jobs numbers are expected to show another 25,000 dip in the number of people out of work, while wages are expected to have risen 1.2 percent year-on-year - improving, but still well below inflation.

"The key theatre for policy is expected to be the labour market," said Paul Robson, strategist with RBS (LSE: RBS.L - news) in London.

"The labour market report is widely expected to see a tick down in the unemployment rate and tick up in wage growth. This sets the bar a little higher for a possible positive sterling reaction this week."

Danske Bank (Other OTC: DNSKF - news) said there were strong indications of a long-term turnaround for the euro towards 88 pence, recommending clients place bets on a stronger single currency.

Forex.com's Brooks said she believed the U.S. Federal Reserve's statement on Wednesday evening UK time might prove a more decisive impulse for sterling than any of the domestic factors.

"The budget should be pretty neutral all in for the pound," she said. "What could be the next driver is a push higher for the dollar."