February 9, 2012 / 1:26 PM / 7 years ago

Sterling rises after BOE QE, eyes recent high vs dlr

 (Updates with reaction to BOE QE announcement)	
 * Sterling rises vs dollar and euro after QE
 * BOE action douses talk of more aggressive easing
 * Better risk appetite could drive sterling higher
 By Anirban Nag	
 LONDON, Feb 9 (Reuters) - Sterling climbed against the
dollar and the euro on Thursday after the Bank of England said
it will inject 50 billion pounds more into the UK economy, which
was in line with expectations and quashed market talk of a more
aggressive stimulus.	
 The BOE left its key interest rate at a record low of 0.5
percent, and said it would buy another 50 billion of assets -
mostly government bonds - with freshly printed money. Some had
positioned for a 75 billion injection, forcing them to reverse
those bearish positions, traders said.	
  "It is a bit of relief," said Richard Wiltshire, chief fx
trader at ETX Capital. "Sterling has been in a period on ongoing
resilience and with the suggestion that inflation will achieve
the goal of below 2 percent without further stimulus, things are
 again looking positive for it."	
 In its accompanying statement, the BOE sounded a bit more
upbeat saying recent surveys painted a more positive picture of
the UK. It was also expecting inflation to undershoot 2 percent
in the medium term without more monetary support.
. 	
 Sterling rose to a session high of $1.5880, from
$1.5830 before the BOE announcement. The currency had risen to
$1.5929, its strongest since mid-November, on Wednesday.
Near-term resistance is seen at its 200-day moving average of
$1.5937 with traders citing offers at $1.5900 and bids lurking
at $1.5760-80.	
 Earlier, the pound got a boost after UK industrial data beat
forecasts and the trade deficit narrowed more than expected. But
that rally proved fleeting.	
 The euro fell 0.4 percent against sterling to 
83.52 pence, having risen to 84.02 pence earlier in the day -
its highest in more than a week and hovering above its 55-day
moving average of 83.84.	
 The European Central Bank also kept base rates unchanged at
1 percent but there are chances it could flag more cuts in the
near term. Investors are also hoping that Greece will strike a
deal to avert a default soon.	
 	
 HEADWINDS	
 Analysts said even though there was evidence that the UK
growth picture was improving, headwinds remain and that could
temper the currency's gains. 	
 Recent purchasing managers' surveys indicated business
activity was improving, but a survey on Tuesday showed retailers
suffered their second worst January since records began in 1995.	
 So chances of more QE will depend on whether growth will
pick up on one hand and downside risks to inflation risks on the
other.	
 "On balance I would argue that the MPC taking a cautious
approach to QE and the future trajectory of BOE asset purchases
remains far from certain," said Kathleen Brooks, research
director at FOREX.com.	
 "In the very near term, if sterling/dollar can break above
$1.5900 then tough resistance lies at $1.5940, but the road to
$1.60 actually depends less on QE and more on the overall risk
environment."	
 Overall risk appetite was holding up well on expectations
that central banks around the world will keep monetary policy
easy to support growth. There were also expectations that Greece
 can avoid default and prevent contagion that could ensnare
larger euro zone economies like Spain and Portugal.	
 "So a lot of what will happen to sterling will depend on how
euro/dollar reacts. If euro rises to above $1.35, then sterling
will rise too," said Peter Allwright, head FX trader at fund
manager RWC Partners.	
	
 (Editing by Ruth Pitchford)	
 
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