Sterling hits one-week high against euro after weak Europe data

Wed Oct 24, 2012 12:21pm BST

Related Topics

* Poor euro zone data weighs on euro/sterling

* Markets to focus on Thursday's UK GDP data

* BoE King's speech adds to doubts over more QE

By Anooja Debnath

LONDON, Oct 24 (Reuters) - Sterling rose to a one-week high against the euro on Wednesday as disappointing economic data from the euro zone clouded its outlook and hurt the currency.

The euro was down 0.7 percent against the pound at 80.82 pence, slipping well below its 200-day moving average of 81.08 pence and opening the door for some more losses. Near term support is seen around 80.55 pence -- its Oct. 16 low.

The euro also fell to a one-week low against the dollar at $1.2922 after weaker-than-expected German manufacturing and sentiment data fuelled concerns about the resilience of the euro zone's largest economy.

While sterling didn't react much to the surprise fall in British factory orders in October, the CBI industrial trend's survey showed both domestic and overseas demand had fallen unexpectedly.

Earlier sterling had benefited from Bank of England Governor Mervyn King's comments that policymakers would have to think "long and hard" about pumping any more cash into the economy, dampening hopes of clearer support for more stimulus.

Sterling was up 0.4 percent at $1.6010, with traders citing demand from a UK bank. Its steady purchases helped it to recover from a 6-week low of $1.5914 struck on Tuesday, although investors were wary of buying the currency in large amounts ahead of key UK gross domestic product data.

"It (CBI industrial trends) was a poor figure but everyone's focus is now on GDP. It was just a small move on sterling," said Lee McDarby, head of dealing for corporate and institutional treasury at Investec. "Market focus is entirely upon GDP and that is what people are going to position their view on sterling around."

Preliminary UK GDP data for the third quarter on Thursday is expected to show the economy pulling back out of recession but there is little prospect of more bullish growth.

A poor GDP report will put pressure on the BoE to ease monetary policy in the coming months, although markets took King's latest comments as a sign that further quantitative easing (QE) in November was not a done deal.

King said unorthodox methods used by the BoE to prop up the economy were reaching their limits of effectiveness.

"People don't expect the economy to do anything other than bump along the bottom and QE is less and less effective," said Kit Juckes, currency strategist at Societe Generale. The bank has a sell recommendation on sterling against the dollar.

"It is a rather gloomy message but there is a first response that maybe one should buy sterling on the back of this after yesterday's fall."

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