Sterling steady before release of UK employment data

Wed Oct 12, 2011 8:29am BST

Related Topics

* Sterling pares overnight losses, flat on day at $1.5600

* UK employment data expected to put pressure on pound at 0830 GMT

* BoE's Dale says economy likely to weaken through rest of year

By Neal Armstrong

LONDON, Oct 12 (Reuters) - Sterling steadied on Wednesday after slipping the previous day on weak manufacturing data, with risks for the pound still seen to the downside ahead of UK employment data which is expected to affirm the fragile state of the British economy.

August UK factory output was the weakest since February 2010, while think tank NIESR said on Tuesday Britain's economy had picked up in the third quarter, although the overall recovery was still the weakest since World War One.

"Sterling will be vulnerable if we get a disappointing employment report. It looks soft and the risks are to the downside," said Niels Christensen, currency strategist at Nordea.

The pound was close to flat on the day against the dollar at $1.5600 , off its overnight lows of $1.5544. Traders reported offers around $1.5660/70 and into $1.5700, with key resistance seen at $1.5716, the late September high.

Sterling was well above a 14-month low of $1.5270 plumbed last week in a knee-jerk negative reaction to the Bank of England announcing it would restart its asset purchase programme to try and stimulate demand in the UK economy.

Analysts said the subsequent recovery had been driven by a squeeze of excessively short positions in the pound.

Britain's economy is likely to get steadily weaker through the rest of this year, and the Bank of England's future decisions on asset purchases will be largely driven by overseas developments, BoE chief economist Spencer Dale told Reuters on Wednesday.

Fellow BoE policymaker Adam Posen said on Tuesday he was "pleased" the British central bank had decided to further ease monetary policy last week.

Posen had long advocated an expansion of the BoE's 200 billion pound asset purchase program.

The euro was also steady at 87.60 pence after edging to a near three-week high of 87.65 in overnight dealing. Traders reported offers on approach to 88.00.

Technical analysts said Tuesday's close above the 200-day moving average at 87.16 was a positive signal and suggested a retest of the mid-September high of 87.95.

Unemployment data is due for release at 0830 GMT, with analysts forecasting Britain's unemployment rate went up to 8 percent in August, with the claimant count also seen climbing on the back of changes to the benefit system introduced earlier this year.

The main pressures on employment are a weak economy and job cuts in the public sector. Partly as a result of rising joblessness, average earnings are forecast to have grown much more slowly than inflation at 2 percent.

"The employment picture has been weak of late, with jobless claims and unemployment rate rising persistently since March earlier this year," said analysts at Lloyds in a note.

"Another weak release will put further pressure on GBP, though we see good support for GBP/USD around the 1.55 level." (Editing by Toby Chopra)

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