Sterling flat, vulnerable to risk of easing hints from Carney

LONDON Thu Feb 7, 2013 8:40am GMT

A generic picture of a some British sterling money in coins and bank notes. BANKG REUTERS/Catherine Benson CRB

A generic picture of a some British sterling money in coins and bank notes. BANKG

Credit: Reuters/Catherine Benson CRB

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LONDON (Reuters) - Sterling hovered near multi-month lows against the dollar and euro on Thursday, with investors wary ahead of a testimony from incoming Bank of England governor Mark Carney later in the session.

Any hints of more aggressive policy easing to support the economy from Carney, who takes the helm at the Bank in July, could push the pound lower, analysts said.

Sterling edged up 0.1 percent on the day versus the dollar to $1.5682, near Tuesday's near six-month trough of $1.5630.

The euro was steady against the pound at 86.34 pence, with eyes in mainland Europe firmly fixed on a potentially pivotal European Central Bank policy meeting.

The single currency has retreated since hitting a 15-month high of 87.17 pence last week, but was still up more than 6 percent on the year versus sterling.

"Every chart you look at for sterling shows it's near huge long-term levels. Were there to be anything that indicates Carney is going to take a radically easier stance from here, that could be the thing that takes sterling through those levels," said Simon Derrick, head of FX research at Bank of New York Mellon.

Carney's testimony to a parliamentary committee, due around 0945 GMT, will take place on the same day as the Bank announces its latest interest rate decision.

Bank's policymakers are expected to keep rates on hold at 0.5 percent and the total of quantitative easing via asset purchases at 375 billion pounds. Strategists said investors would be far more focused on Carney as a result.

Before the testimony, manufacturing and industrial output data for December and figures for the monthly goods trade balance will give market players another opportunity to gauge the health of the UK economy.

Concerns about UK growth have weighed on sterling since data showed the economy shrank in the last quarter of 2012.

Analysts said gloom about the wider economic outlook left the pound vulnerable to more selling. A PMI survey this week showing better-than-expected activity in the dominant services sector but failed to lift sterling.

"The pound may also be affected by the trade and production numbers, but the (lack of) reaction to the strong PMI services data suggests that there is more potential for a sterling negative reaction," Lloyds analysts said in a note.

(Editing by John Stonestreet)

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