Sterling edged higher against the dollar on Thursday, tracking gains in the euro versus the dollar after solid demand at a Spanish debt auction, but its rise was limited by weak consumer confidence data that added to concerns about the UK economy.
The pound dipped against a broadly stronger euro, although analysts expected any rally in the single currency to be limited given ongoing concerns about the euro zone debt crisis.
A survey showed UK consumer confidence dropped close to its lowest level in seven years in December, adding to worries about a fragile economy and the risk of the Bank of England easing monetary policy next month. Sterling rose 0.1 percent to $1.5445, having hit a one-week high of $1.5466. Traders said it may stall ahead of the 21-day moving average at $1.5482, but cited stop loss orders through $1.55. "We have had some positive developments over the last day or two and a good auction out of the eurozone today," said Ankita Dudani, currency strategist at RBS.
"(However) we did not have good data out of the UK, and lower inflation suggests the BoE may be ready to ease as soon as next month. Come February we will probably start to see some downside in cable." RBS forecast the pound to fall to $1.5120 against the dollar by the end of the first quarter of 2012. Recent weak UK data, including lower inflation numbers, have added to expectations the BoE will increase asset purchases under its quantitative easing programme next month. Data on Wednesday showed the number of Britons out of work at its highest in more than 17 years in November, although a smaller than expected number of new benefit claims in December provided some hope the labour market may be levelling out.
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