LONDON: Sterling was subdued on Thursday, trading near a seven-week low against the dollar while it gave up some of its gains versus the euro made in the previous day with investors looking to sell the pound on upticks given the gloomy outlook for the UK.
The second estimate of UK GDP is due at 0930 GMT and is forecast to show an unchanged reading of 0.5 percent growth in the third quarter. Traders said such a reading is unlikely to help the pound, although a weaker than forecast number could see fresh downward pressure on the UK currency.
Sterling was last flat on the day at $1.5524, not far from Wednesday's low of $1.5495. A drop below that will take it to its lowest in seven weeks. On the upside, traders said decent offers at $1.5600 were likely to check gains. Option expiries at $1.5605 are also likely to sway trade.
Against the euro, sterling was slightly lower. Euro was up 0.2 percent at 86.12 pence with offers cited above 86.20 pence and stops lurking below 85.50 pence on the downside. Analysts said if the euro comes under pressure against the dollar, it could ease against the pound.
The euro had shed 0.5 percent against sterling on Wednesday after poor demand at a German debt sale stoked fresh fears that the peripheral debt problems were starting to hurt core euro zone countries.
"If German yields continue to rise we could see euro come under some pressure against sterling," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.
Analysts say rising German debt yields could increase demand for UK gilts--still considered a safe-haven-- and potentially supporting the pound.
On Wednesday, the spread between the German and UK 5-year CDS widened to nearly 10 basis points, the widest since early October. Stephen Gallo, head of market analytics at Schneider Foreign Exchanges expects it to widen out further, eyeing the record level of 21 basis points set back in late September.
Still, any upside for the pound would be limited given gloomy UK economic data and prospects of more quantitative easing by the Bank of England.
"I think investors are looking to play it looking for further weakness," JP Morgan's Chile-Freeman added. "The BOE is in a very dovish frame of mind and that is not surprising."
Bank of England minutes on Wednesday revealed a 9-0 vote to keep its quantitative easing target at 275 billion pounds, though some felt more QE might be warranted in the future.
Analysts said there was some relief that there were no votes to increase QE this month, though this was offset by warnings that the euro zone debt crisis was exacerbating bank funding problems.
Later in the day CBI industrial orders survey for November will be released and is likely to give a fresh indication how activity in sector is slowing in the last quarter of the year.
Comments
Comments are closed.