Sterling edged up to a one-week high against the dollar on Tuesday ahead of a widely expected interest rate cut from the U.S. Federal Reserve later in the session. The Bank of England cut rates to 5.50 percent last week, but analysts and markets reckon its easing cycle will be less aggressive than that of the Fed, thus keeping sterling's yield advantage intact -- at least versus the dollar. However analysts said that with no fresh news overnight, markets were taking their direction from technical levels at least as much as from fundamentals, as thinning liquidity into the year end exacerbated the magnitude of such moves.

"It's pretty obvious now that the UK economy is most linked into the U.S., so the bounce we've seen in cable in the last couple of days, and the move down in euro/sterling is more about levels and positioning," said Geoff Kendrick, currency strategist at Westpac.

"With euro/sterling very close to that all-time high it's quite difficult to get through there and we are seeing a bit of resistance. But eventually that level will break and that should see cable quite a lot lower," he added.

By 0818 GMT the euro was steady at 71.83 pence, having retreated from a peak of 72.39 pence last week -- only a whisker short of an all time high of 72.55 scaled in mid-2003.

Sterling was also flat against the dollar at $2.0480, off an earlier one-week high of $2.0519.

UK October trade data at 0930 GMT is expected to show the deficit narrowed slightly compared to the previous month.

Analysts are scanning UK data for clues on whether the economic slowdown is sharp enough to warrant another rate cut before February.

British companies are less confident about recruiting new staff than at any time in more than two years, with the finance sector showing a notable decline, according to a Manpower survey released on Tuesday.

Source Supplied by Reuters