November 30, 2016 / 11:51 AM / 3 years ago

UPDATE 2-OPEC effect helps sterling to best month vs euro since 2009

* Graphic: sterling and gilt yields

* Graphic: World FX rates in 2016 (Updates after moves on OPEC deal)

By Patrick Graham

LONDON, Nov 30 (Reuters) - Sterling surged back to an 11-week high against the euro in late trade in London on Wednesday, racking up its best month since January 2009 as a deal to cut OPEC oil output weakened the single currency against the dollar.

The pound had suffered earlier, with dealers citing month-end rebalancing by investors after what was also its strongest performance against the dollar since April.

But an almost 1 percent loss for the euro after the confirmation of OPEC’s first curbs on output in eight years put it back on track, rising 0.7 percent to 84.56 pence per euro - its strongest since early September.

“The most interesting stuff that is going on at the moment is OPEC and the influence that it is having on fixed income,” said Citi strategist Josh O’Byrne.

“The market is trading on the perceived fiscal impulse from the U.S., and the fact that we have higher yields everywhere. That is having an impact on currencies that have low yields, low inflation and sterling is really on the sidelines in comparison.”

The pound has gained 1.7 percent against the dollar in November, breaking a losing run that dates back to April and the lead-up to Britain’s surprise vote to leave the European Union on June 23.

Against the euro, it has gained almost 6 percent. But that all comes at the end of by far its weakest year since the 2008 financial crisis, the product of uncertainty before the referendum and expectations that sterling will continue to fall as talks on leaving the trading bloc begin next year.

Dutch bank ING was the latest to forecast sterling to fall to $1.15 in the early part of next year, given the lack of clarity over Britain’s negotiating strategy and the risk of a poor outcome that damages the economy for the long run.

“The broader risks to GBP continue to lie to the downside,” the bank’s currency strategists said in their 2017 outlook on Wednesday.

“Sterling is likely to bear the brunt of this lack of political transparency, while further uncertainty over the UK’s eventual degree of access to the EU single market could see the emergence of new unaccounted risks.”

A regular survey by market research firm GfK on Wednesday showed confidence among British consumers fell in November to its lowest level since just after the vote in June.

Investors were also digesting the need for more capital at British bank RBS after it failed the Bank of England’s latest round of stress tests.

Editing by Ruth Pitchford

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