Wednesday, 28 November 2012 16:26
LONDON: Sterling was little changed on Wednesday and seen at risk of losing ground, particularly against the dollar due to concerns over US fiscal problems that could derail global growth.
The pound, inched down to $1.6008, pulling away from a three-week peak of $1.6056 hit on Tuesday after a second official reading confirmed upbeat third-quarter growth data.
Near term resistance is at $1.6045, the 50-day moving average, with most investors wary of building long positions betting on more gains for sterling amid lingering concerns about the UK economy.
With the neighbouring euro zone in crisis, Bank of England officials warned on Tuesday the bank may have to buy even more government bonds to boost the economy, something that involves flooding the market with sterling.
"It is quite worrying in cable (sterling/dollar), if you are a bull, that we really haven't been able to make much traction above $1.6050. Cable is being moved by where the dollar is going," said Kathleen Brooks, research director at FOREX.com.
"Greece is out of the way for now and Spain is fully funded until the end of the year so the focus from now until Christmas is going to be the U.S fiscal cliff."
Comments by US Senate Majority Leader Harry Reid on Tuesday about the lack of progress by Democratic and Republican lawmakers fanned concerns.
If an agreement is not reached to avert a $600 billion squeeze of cuts and taxation, the world's largest economy could fall back into recession, fanning demand for safe-haven currencies like the dollar and yen.
While the deal in Greece briefly supported the euro on Tuesday, scepticism about the broader euro zone returned to weigh on the single currency.
The euro was trading at 80.72 pence, easing from the one-month high of 81.145 pence against sterling after euro zone officials agreed a deal on a new debt target for Greece.
UK consumer credit and mortgage data due on Thursday will provide more clues to the health of the economy and the chances of the BoE easing policy further.
BoE Governor Mervyn King told lawmakers on Tuesday that the chances of a rapid recovery in 2013 and 2014 were not very great and added quantitative easing was not leading to an expansion in demand and inflation. He added unless there was a further fall in the real effective exchange rate, the UK would struggle.
Analysts said that unless the UK's growth prospects improved, any bounce in sterling would be shallow and sellers would emerge at higher levels.
"A break below $1.60 would suggest we'll see it fall back towards the bottom of the channel around $1.5750, while a break above could prompt a move back towards September's highs," analysts at Alpari Research said in a note.
Copyright Reuters, 2012