LONDON, June 26 Reuters Sterling gave back early small gains against the dollar and euro on Monday as traders continued to grapple with the implications of the previous week39;s outsized rate hike by the Bank of England.

The pound was last flat against the dollar at 1.2712 , having earlier been up as much as 0.25. That was a small rebound after its 0.83 decline last week, its biggest weekly drop since mid May.

Sterling was also unable to hold onto its early gains against the euro, made after soft German business sentiment data. The European common currency was last up 0.28 at 85.90 pence.

Monday39;s moves in sterling followed the Bank of England39;s largerthanexpected 50 basis point interest rate hike on Thursday, which pushed market pricing for the peak in the Britain39;s key interest rate over 6.

That implies further tightening of more than 100 basis points. In contrast, markets expect other major central banks to be near, if not at, their rate peaks.

Traders are trying to assess whether this should mean a stronger pound, with currencies typically benefiting from higher rates compared to peers, or whether the ramifications for economic growth in Britain mean the pound will weaken.

Price action points to sterling being at an inflection point at which further rates hikes are no longer bullish for the currency, said BNP Paribas analysts in a note.

The pound however hit a fresh sevenandahalf year high against the underpressure Japanese yen, reaching 182.98 yen…