February 23, 2012 / 10:08 AM / 7 years ago

Sterling hits 10-week low vs euro after Ifo, BoE minutes

* Pound under pressure vs euro from possibility of more QE

* Strong upside momentum in euro/sterling after break of 84p

* CBI trends for February due 1100 GMT

By Nia Williams

LONDON, Feb 23 (Reuters) - Sterling fell to a 10-week low against the euro on Thursday after a stronger-than-forecast German Ifo survey combined with unexpectedly dovish Bank of England minutes from the previous day to weigh on the UK currency.

The pound looked set to remain under pressure against the single currency after the German business sentiment survey raised expectations the euro zone’s largest economy could avoid a recession.

Sterling rose against the safe haven dollar, however, as perceived riskier currencies rallied broadly following the Ifo.

The euro rose around 0.5 percent to 84.89 pence, its highest level since mid-December. The break through resistance at 84 pence on Wednesday was seen as a strong bullish signal and traders cited euro buying by an Asian sovereign.

The pound also fell to a 10-week low against a basket of currencies, with trade-weighted sterling hitting 80.3.

Sterling climbed 0.3 percent versus the dollar to $1.5709, breaking through resistance from its 100-day moving average around $1.5697.

“We have established a new range in euro/sterling, instead of trading between 82 and 84 pence, we’ll see more trading between 84 and 86 pence,” said John Hydeskov, chief analyst at Danske Bank.

“The minutes were much more dovish, it seems likely the BoE will do more QE now. The better German Ifo also adds up to a higher euro/sterling, I’m waiting for a firm break of 85 pence.”

BoE minutes on Wednesday showed two policymakers voted to pump an extra 75 billion pounds into the economy instead of 50 billion, raising the possibility the bank may opt for another round of asset purchasing.

Traders said the market had been positioned for the risk of one or two policymakers voting for no quantitative easing at all after the BoE’s latest inflation report predicted the economy would improve.

Quantitative easing is usually seen as negative for a currency because it involves the central bank printing pounds to stimulate economic growth, weighing on demand for sterling.

But some analysts said sterling’s fall against the euro had gone too far and recommended buying it back at these levels.

Citi strategists said their reading of the minutes was less dovish than the market’s interpretation, and saw a risk of policymakers concerned about inflation voting more hawkishly at future meetings.

“With the above in mind we think that the sell-off in sterling provides a buying opportunity especially against the euro. It seems that the spike higher in EURGBP of late has pushed the cross into overbought territory,” they wrote in a CitiFX Wire note.

On the data front, the CBI industrial trends survey at 1100 GMT was expected to show a slight improvement on the previous month, but remain in negative territory. Analysts said the market was positioned for a weaker number but the data could add to weakness against the euro. (Editing by Toby Chopra)

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