Forex News

Sterling hits seven-month high as dollar hit by Fed comments

26 April, 2012 - Reuters
  • Sterling rises to $1.6208 versus softening dollar
  • Pound shrugs off contraction in UK economy
  • But rally may run out after nine consecutive days of gains

By Neal Armstrong

LONDON, April 26 (Reuters) - Sterling rose to its highest level in over seven months against the dollar on Thursday, shrugging off a recession in the UK and primarily driven by weakness in the greenback after US policymakers kept the door open for more monetary easing.

Federal Reserve Chairman Ben Bernanke said on Wednesday that U.S. monetary policy was "more or less in the right place" even though the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken.

The pound recovered from knee-jerk selling the previous day when preliminary data showed the UK economy unexpectedly slipped back into recession in the first quarter of this year.

Sterling rose to $1.6208, its highest since September 2011, to trade with gains of 0.2 percent for the day. The dollar slipped to a fresh three-week low versus a basket of currencies.

"Cable is looking reasonably perky and that's down at least in part to dollar weakness," said Adrian Schmidt, currency strategist at Lloyds Banking Group.

"But the pound has had nine consecutive up days against the dollar now which is a long run and I don't think that can be sustained," he added.

The euro was close to flat for the day at 81.80 pence after rising to 82.22 against sterling on Wednesday. The pound remained close to this week's 20-month high of 81.43 as euro zone debt markets remained precariously balanced.

Overnight data showed British consumer morale rose in March to its highest level in nine months. The figures tie in with the recent release of strong retail sales data for March and contrast with Q1 GDP data, which is often subject to revision.

Positive purchasing manager surveys and a less dovish tone from the Bank of England have reduced the chances of more monetary easing in the UK in May, providing underlying support to the pound.

"A less dovish BoE continues to provide important support for sterling with the growing UK interest rate advantage against the U.S. and euro zone seemingly unharmed by the disappointing GDP data," said Valentin Marinov, head of European G10 FX Strategy at Citi.

"We suspect that market reaction reflects the fact that the MPC (BoE monetary policy committee) expects any deterioration in growth to prove temporary and give way to a recovery in H2," he added.

UK CBI distributive trades data for April is due for release at 1000 GMT and is expected to show a reading of minus 4 following a flat result in March.

(Editing by Susan Fenton)

Copyright Thomson Reuters 2012. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.

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