© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna

LONDON (Reuters) – Sterling slipped on Thursday, holding below $1.40 before a European Central Bank meeting, as investors weighed up the outlook for an economic recovery from COVID-19 in the UK.

Currency markets were generally quiet in early London trading, with the dollar holding near seven-week lows and the euro little changed from the previous two session’s closing prices.

After a short squeeze at the start of April, the pound has strengthened against the dollar in recent weeks – a move which Kenneth Broux, FX strategist at Societe Generale (PA:) said was driven by U.S. Treasury yields coming down from their recent highs, which prompted the dollar to weaken.

“If U.S. 10-year yields were to test and break 1.50%, that would be bullish for the pound, certainly against the dollar,” Broux said.

“I think the macro economic data (in the UK) is brightening, we’ve seen that in the economic numbers this week … we also have strong consumption.”

“The only question really for the pound is how much is priced in, in terms of the economy. We know Q2 will be strong-ish but we don’t know how strong it is and what is priced in.”

At 0913 GMT, the pound was at $1.39135 versus the dollar, down 0.1% on the day. Versus the euro, it was down around 0.2% at 86.545 pence per euro.

Earlier this week, sterling hit a six-week high against the dollar after Britain’s unemployment rate unexpectedly fell for a second month in a row in the December to February period, most of which the country spent under a tight COVID-19 lockdown.

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UK retail sales data is due on Friday, along with flash PMIs – which Broux said he expects to be “very, very strong” in services.

Non-essential shops in England and Wales re-opened on April 12, as part of a plan to ease the COVID-19 restrictions. The number of people going to shops in Britain jumped 87.8% last week, data on Monday showed.

For the day ahead, market attention is on the ECB monetary policy meeting. The central bank is expected to leave policy unchanged, emphasising its stimulus measures are keeping the pandemic-struck economy afloat so they should not be clawed back too soon.

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