* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
By Julien Ponthus
LONDON, April 21 (Reuters) - Sterling held its ground
against the dollar on Wednesday as traders assumed a rise in
inflation in March would have little impact on monetary policy
and waited for crucial activity and retail sales data due at the
end of the week.
Consumer price inflation rose to 0.7% in March after dipping
to just 0.4% in February, as global oil prices rose and
retailers scaled back their COVID-driven discounts.
"CPI isn't a story that will be driving sterling in the
short term", said Jeremy Stretch, a foreign exchange strategist
at CIBC Financial markets.
Financial markets see about a 50% chance of a quarter-point
increase in interest rates by the Bank of England by the end of
next year, but many economists think it might take longer for
the BoE to move.
In the short term, Stretch said, investors will focus on
Friday's UK Composite Purchasing Managers' Index to gauge the
strength of Britain's economic recovery.
The pound was up 0.01% at $1.3939 at 0836 GMT, sitting in
striking distance of the $1.40 mark it crossed on Monday for the
first time in nearly a month.
Sterling also rose about 0.2% against the euro to 0.8620
pence.
Sterling has been among the best performing in the G10 group
of currencies this year as investors hope Britain's rapid pace
of vaccinations will lead to a strong economic rebound from the
country's worst economic contraction in 300 years.
Analysts at Rabobank wrote on Tuesday that the rise on the
currency may soon resume due to positive economic conditions.
"Now that many of the longs positions that were built in the
pound during Q1 have been shaken out, it would appear that GBP
bulls may be re-grouping", they wrote adding that "support for
the pound has come from anecdotal evidence highlighting an
encouraging picture from freshly re-opened UK businesses".
Data on Tuesday added further signs the economy is
recovering with Britain's unemployment rate unexpectedly falling
for a second month in a row to 4.9% in the December-to-February
period.
(Reporting by Julien Ponthus, editing by Larry King)