* Bank of England keeps rates on hold at 0.5 pct
* Better rate differentials could weigh on euro/sterling
* Analysts: more QE likely next year
By Nia Williams
LONDON, Dec 8 Sterling inched higher
versus the euro on Thursday after the Bank of England kept
interest rates on hold, with focus now switching to a European
Central Bank rate decision that could reduce the premium for
holding the single currency.
The BoE Monetary Policy Committee voted to keep interest
rates on hold at 0.5 percent, reaffirming a commitment to easy
monetary policy, and announced no change to its 275 billion
pound asset purchasing programme.
The ECB, meanwhile, is seen cutting its own rates to 1
percent in a bid to stave off a deeper recession amid efforts to
quell its two-year debt crisis.
There was little reaction in the pound to the rate decision
given many investors had already positioned for it to be
unchanged. The euro was last down 0.2 percent at
85.21 pence, in sight of a one-month low of 85.10 pence hit the
"There is nothing to get excited about with this decision,
it was very much as expected. The focus is now on the ECB," said
Michael Derks, chief strategist at FX Pro.
Analysts said sterling could rise against the euro if the
ECB cuts rates. A break below Wednesday's low would put the euro
on course to target the Nov. 10 trough of 84.86 pence, below
which would mark the lowest level since March.
"Sterling may gain a bit of ground against the euro if the
ECB cuts because on a carry basis there would be an
improvement," said Jane Foley, senior currency strategist at
"Cable may also see a better day if there's an increased
feeling of optimism in respect to ECB actions and political
actions. If risk appetite does build, the likelihood is the
dollar will suffer and cable will push higher."
Developments in Europe were seen as the key driver of
sterling trade over coming sessions. Any sign that politicians
will make progress in resolving the crisis at an EU summit on
Friday would be likely to boost perceived riskier currencies.
Sterling was last flat at $1.5708 with traders
citing good offers around $1.5750 and $1.58. Technical analysts
highlighted resistance at $1.5740, the 55-day moving average,
ahead of the late November high at $1.5780.
MORE QE SEEN NEXT YEAR
Market players said as the rate decision was already
factored in to sterling prices, the release of the minutes of
the meeting in around two weeks time would provide a better
gauge of when the BoE may resort to another round of asset
The central bank restarted its quantitative easing programme
in October with a 75 billion pound cash injection and most
analysts reckon it will wait until that round ends in February
before extending it.
"There will be more asset purchases at some point next year,
the UK economy is definitely fragile and needs easing," said
Ankita Dudani, G10 currency strategist at RBS.
Although QE would usually be seen as negative for sterling
because it involves flooding the market with pounds and reducing
demand, Dudani said the UK currency could buck that trend.
"Now it's more of a case of which central bank has the
independence and capacity to do what is needed to help the
economy. At least the BoE is able to do what is required," she
(Editing by Toby Chopra)