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Sterling falls broadly after ECB strikes more optimistic tone
March 9, 2017 / 6:10 PM / 6 months ago

Sterling falls broadly after ECB strikes more optimistic tone

(Recasts headline)

* Graphic: Sterling and gilt yields bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

By Ritvik Carvalho

LONDON, March 9 (Reuters) - Sterling fell broadly against other major currencies on Thursday after the European Central Bank said euro zone economic growth and prices did not now need immediate support, while concerns about the British economic outlook also weighed.

ECB President Mario Draghi on Thursday said the bank would continue its aggressive stimulus policy at least until the end of this year. But he said the ECB no longer felt a “sense of urgency” about taking further steps to prop up growth and inflation in the euro zone.

The pound was already lower earlier in the day as investors brushed off Britain’s Wednesday budget as a “non-event” that would do little to boost growth as the country prepares to leave the EU.

A surge in euro-buying following Draghi’s remarks pushed the pound down to fresh seven-week lows of 87.19 pence per euro , and $1.2134.

The ECB’s leadership has faced calls from Germany to start winding down its 2.3 trillion euro ($2.43 trillion) bond-buying scheme, or at least signal its intention to do so as the euro zone’s economy recovers.

The Frankfurt-based central bank nonetheless stuck to its plan to continue the purchases until December. It also pledged to keep interest rates at current, record-low levels until long after that, or even cut them if necessary.

Sterling was last trading down 0.4 percent at 86.69 pence per euro, and 0.1 percent lower at $1.2160. It has fallen nine times in the last ten trading days, as downbeat UK economic data and talk of a fresh Scottish independence referendum have created uncertainty for investors in the run-up to Britain’s divorce talks with the European Union.

Scotland could hold a second referendum on independence in the autumn of 2018, just months before Britain is due to leave the European Union, Scottish First Minister Nicola Sturgeon told the BBC. A second poll in a month suggested growing support for secession.

“There are concerns over the medium term in terms of the Brexit negotiations but also just broadly the path of UK macro,” said Richard Cochinos, head of European G10 FX strategy at Citigroup in London.

The market was likely reaffirming its conviction in this view after the ECB’s announcement, he said.

“Compared to Europe or the US, or all your other major economies, where we’ve continually seen data surprises to the top-side, the weakness in the UK really does stand out.” (Editing by Hugh Lawson)

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