Forex News

Sterling hits seven-month high versus dollar

26 April, 2012 - Reuters
Adds detail, updates prices)
  • 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 before easing back to $1.6188.

    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 81.70 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.

    Traders reported option related euro demand and also corporate bids placed below 81.50.

    Overnight data showed British consumer morale rose in March to its highest level in nine months, while separate CBI data released Thursday showed retail sales fell slightly more than expected in April.

    Positive purchasing manager surveys this month and a less dovish tone from the Bank of England in their policy minutes have reduced the chances of more monetary easing in the UK in May and provided 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.

    Editing by Toby Chopra)

    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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