Pound drops slightly but near three-week high against euro

The euro was at 86.15 pence, 0.17% higher on the day and just above from the 85.995 pence touched Friday, the pound's strongest since mid December

The pound weakened slightly on Monday but stayed near its strongest in three weeks against the euro, a level reached the week before on expectations the European Central Bank will cut rates before the Bank of England.

Those expectations, which depend on the British economy holding up better than the euro zone's, will be tested this week by remarks on Wednesday by BoE governor Andrew Bailey before Parliament and monthly Gross Domestic Product (GDP) data due Friday.

The pound slipped 0.18% against the dollar to $1.2696, marginally nearer the top than the bottom of its recent range.

The euro was at 86.15 pence, 0.17% higher on the day and just above from the 85.995 pence touched Friday, the pound's strongest since mid December.

As you see economies in the euro zone move to something synonymous with an economic hard landing, you are seeing the opposite in the UK where the data is painting a more optimistic picture, and we think that's got room to run, said Simon Harvey, head of FX analysis at Monex Europe.

An economic hard landing refers to a more severe recession than a soft landing.

That growth outperformance and the idea that the BoE will keep higher rates comparatively longer than other central banks, in the short term is very positive for sterling.

Data last week showed net borrowing by British consumers was the highest in around seven years in November - when retail sales surged - and lenders approved the most mortgages since June.

The final S&P Global/CIPS UK Services Purchasing Managers' Index (PMI) also was revised higher last week to show the sector grew more strongly in December than had been thought.