Forex - Pound pushes higher against dollar

The pound gained ground against the dollar on Monday, boosted by expectations that the Bank of England will raise interest rates sooner than anticipated, as markets stabilized following a broad based selloff in risk assets.

GBP/USD was up 0.48% to 1.6560, recovering from Friday’s lows of 1.6477.

Cable is likely to find support at 1.6300 and resistance at 1.6667, Friday’s high and a 28-month high.

Demand for sterling continued to be underpinned after data last week showed that the U.K. unemployment rate fell to 7.1% in November, to stand just above the 7% level the BoE has said is its threshold for considering raising interest rates from their current record low of 0.5%.

On Friday, BoE Governor Mark Carney said it was time for the central bank to “evolve” its forward guidance on rates, because the unemployment rate has fallen far more quickly than the bank anticipated.

The comments sparked concerns that the BoE may abandon the 7% unemployment threshold.

Carney said that even with falling unemployment, the U.K.'s economic recovery had yet to reach "escape velocity", adding that exceptional monetary policy is still relevant.

Investors remained cautious as a broad based exodus from emerging market currencies continued on Monday, amid concerns over the impact of the Federal Reserve scaling back its stimulus program and a possible slowdown in China.

Turkey’s lira spiraled to the latest in a series of record lows against the dollar, while South Africa’s rand, the Russian ruble and the Argentinian peso were trading at multi-year lows against the dollar.

Market participants were looking ahead to the outcome of the Fed’s monthly meeting on Wednesday, amid expectations for a reduction in its bond buying program to USD65 billion from the current USD75 billion.

Elsewhere, the euro fell to session lows against sterling, with EUR/GBPdown 0.48% to 0.8259 from 0.8297 on Friday.

The common currency shrugged off a report showing that German business confidence rose to the highest level in two-and-a-half years in January.

The German research institute Ifo said its business climate index rose to 110.6 this month, above forecasts for a reading of 110.0 and up from 109.5 in December, indicating that businesses in the euro zone’s largest economy had a strong start to the year.