Sterling Loses Ground in Readiness for Big Week.

We begin Monday looking ahead into the week with plenty of data that should set the tone as to how the pound favours over the next five days.

Following on from last week, Sterling eased against the dollar on Monday, as traders took profits after the UK currency scaled two-months highs last week on nagging doubts about whether Britain’s interest rates are headed higher throughout 2011.

Figures from the Commodity Futures Trading Commission released late on Friday show that speculators turned long on the euro for the first time in two months in the week ending 18th January, while they doubled their bets against the dollar. With speculators no longer having short positions that need to be closed out, the euro’s upward momentum could slow.

The easing of euro zone debt worries and tough talk from European Central Bank chief Jean-Claude Trichet about keeping inflation in check supported the single currency which inched towards a three week high against the pound.

In contrast, Bank of England policymaker Adam Posen pointed to downside risks to prices on Friday, saying his view on underlying inflation was unchanged, these comments followed data that showed retail sales fell 0.8% during December, which weighed on Sterling once more.

Sterling was down against the dollar also coming into the trading week, and since being well supported since higher than forecast UK inflation data earlier this month caused investors to speculate and interest rates, but will this be enough?

The first estimate for Q4 gross domestic product data will be released on Tuesday and analysts expect growth to have slowed as the harsh winter in likely to have hurt construction and manufacturing activity.

In addition, sterling will look towards Wednesday’s minutes from the Bank of England Monetary Policy committee minutes from this month’s meeting, Hometrack House Prices fro January and CBI Distributive Trades Survey for January.

As Michael Hewson, analyst at CMC Markets states: “With public finance data also due out the same day (as Q4 GDP Data), traders will have a lot to digest in relation to the pound and its recent gains.

“It could well be an interesting week for sterling.”