Pound hits 3-week high versus euro as QE chances lowered
26 October, 2012 - Reuters
- Sterling hits three-week high vs euro
- But vulnerable vs dollar as weak equities weigh on risk
- Strong Q3 GDP data reduces expectations for QE in Nov
- Trade-weighted pound at 3-week peak
LONDON, Oct 26 (Reuters) - Sterling hit a three-week high against the euro on Friday when investors trimmed their bets on more monetary easing after unexpectedly strong UK growth figures the previous day.
The euro fell to a three-week low of 80.02 pence, dented by political uncertainty in Greece and concerns over whether it will receive further funding from international lenders.
This added to worries about recent weak euro zone activity data and over when Spain may ask for a bailout.
"This week seems to be the balance of data. The weakness of the UK has held up against the weaknesses in the European reports which has pushed the euro lower against the pound," said Steve Barrow head of G10 currency at Standard Bank.
Traders reported demand to buy the euro around 80 pence which may stem its losses. More falls could see the euro drop towards the 55-day moving average around 79.93 pence and the Oct. 2 low of 79.79 pence.
Momentum was with the pound rather than the euro, Standard Bank's Barrow said, adding he expected the euro to drop to 75 pence in the long term as the European Central Bank is more likely to ease monetary policy than the Bank of England after data showed the UK grew more than forecast in the third quarter.
Sterling's gains against the euro also pushed its trade weighted index to a three-week high at 84.2, BoE data showed.
But against the dollar, the pound edged away from a one-week high hit on Thursday as poor U.S. corporate earnings hit shares. That dented investors' appetite to buy riskier currencies, including sterling, and prompted them to take profit on the pound's gains.
Sterling was down 0.05 percent against the dollar at $1.6110 , off a high of $1.6144 hit on Thursday.
"Today risk appetite is on a softer footing because of problems in the corporate sector, namely U.S. earnings, so we could see some profit taking (in sterling/dollar)," said Geoffrey Yu, currency strategist at UBS Warburg.
He added that U.S. third-quarter GDP figures due at 1230 GMT could also boost the dollar if they come in on the strong side.
LESS CHANCE OF QE
Figures on Thursday revealed the UK economy grew by 1.0 percent in the third quarter, well above forecasts and lifting Britain out of recession.
Since the data, UK money markets suggest expectations for more easing from the Bank of England have been pared back.
Analysts said the chances of the BoE opting for more quantitative easing (QE) next month have dimmed after the surprising rebound in the economy, making it more likely to be pushed back to the first quarter of 2013.
QE is seen as negative for a currency as it increases the supply in circulation and as investors trim their bets on more QE in November that will lift sterling.
This helped the pound rise broadly. It hit a 3-month high against the Swedish crown and a four-month high against the Canadian dollar
However, some analysts were cautious given the positive impact of the Olympic Games, which may have masked a weaker underlying economy and said the pound's gains may be limited.
Purchasing managers' surveys on UK manufacturing, construction and services sector activity for October, due early next month, will provide the first clear indication of whether the strong momentum continued in the fourth quarter.
(Editing by Ron Askew)
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