Sterling slips vs dollar as risk sentiment wanes

Tuesday, 21 February 2012 18:12

LONDON: Sterling slipped against the dollar and tracked the euro's slide on Tuesday as initial positive sentiment towards a Greek bailout deal waned, with a fragile economic outlook in the UK keeping investors wary of buying the pound.

Euro zone finance ministers finally approved a second bailout for Greece overnight that removes the threat of a disorderly default next month but is unlikely to solve the debt-laden country's economic woes.

Sterling was down at 0.2 percent on the day at $1.5808, after initial news of the Greek deal prompted it to rise to $1.5865. Resistance was the 200-day moving average at $1.5913, together with this month's high of $1.5929.

"The Greek situation is clearly the main influence but sterling's done pretty well over recent weeks without too much justification and I can't see it breaking through $1.6000 against the dollar in the near-term," said Adrian Schmidt, currency strategist at Lloyds Banking Group.

Traders also highlighted an option expiry at $1.5900 in decent size which they said could hamper any rallies into the 1500 GMT cut while reported bids at $1.5790/80 were limiting losses.

The euro was roughly flat at 83.58 pence having risen to 83.835 as details of the Greek deal emerged. Traders said reported offers at 84.00/10 and stop losses through 84.20.

Analysts played down the impact of UK public sector finance data for January that showed the biggest monthly surplus in four years and was far better than forecast.

"Britain typically brings in cash in January so this was not enough to sustain sterling," said Kathleen Brooks, research director at FOREX.com, who added sterling's performance against the dollar was mainly being driven by swings in risk sentiment.

Ratings agency Moody's put the UK's prized triple-A sovereign rating on review for a possible downgrade earlier this month, keeping the pressure on Chancellor George Osborne to stick with strict austerity measures and avoid tax cuts at next month's UK budget.

"It's a good set of data. It means that it looks like we are heading for a full year financial improvement of around 18 billion pounds," said Ross Walker, economist at RBS.

"We are still borrowing huge sums, but against a backdrop where we had Moody's negative outlook and there was growing talk about the UK's rating ... these numbers help."

Sterling's recent moves have been dominated by developments in Greece and signs of improved UK data, including better-than-expected retail sales numbers. It may also take cues from the minutes of the Bank of England's latest monetary policy committee meeting, due on Wednesday.

The MPC voted for another 50 billion pounds of asset purchases at its February meeting to try to stimulate the sluggish economy.

Bank of England Deputy Governor Charlie Bean will give a speech at the Scottish Council for Development and Industry around 1930 GMT.