LONDON: Sterling hovered just above a near five-month low against the dollar on Thursday as investors positioned for data on Friday that is forecast to show the UK economy shrank in the final quarter of 2012.
Some strategists said Prime Minister David Cameron's promise to hold a referendum on Britain's membership of the European Union had also soured longer-term sentiment towards sterling by sowing uncertainty among investors.
The pound was close to flat on the day against the dollar at $1.5843, holding above the previous day's trough of $1.5802, the lowest level since late August, that was hit during Cameron's speech.
Despite gloomy growth forecasts, analysts said sterling may struggle to break below support around the $1.58 level before Friday's gross domestic product data as many investors had already sold the pound.
"I suspect the market is positioned for a pretty poor number, so if there is a surprise to the topside or a decline similar to forecasts we may well see sterling shorts being forced to cover," said Michael Derks, chief strategist at FxPro.
Derks said although there was scope for sterling to consolidate in the very short-term against the dollar, it still looked vulnerable to a test of 85 pence against the euro.
The euro inched up 0.1 percent against the pound to 84.06 pence, helped by a survey showing a rise in German private sector activity that offset an earlier weaker-than-expected French purchasing managers' survey.
The trade-weighted sterling index held at 81.7, just above this week's near 10-month low of 81.5.
With the UK economy showing signs of struggling, weak GDP data on Friday could fuel speculation the Bank of England may opt for more monetary easing in coming months, even though minutes from the January meeting showed some policymakers had doubts about the need for it.
Monetary easing involves printing money to buy bonds and tends to be seen as a negative for a currency because it increases supply.
FX strategists at Citi said they were adding a new short sterling position to their overlay portfolio to reflect the pound's weak economic fundamentals.
"With the UK economy already teetering on the verge of a triple-dip recession and inflation stable, markets are likely to continue to sell sterling ahead of the February MPC as they focus on signals of a potential further increase in the BoE balance sheet," Citi strategists said in a note.
A Confederation of British Industry distributive trades survey, due later in the session, is forecast to fall to +12 from +19 the previous month, potentially adding to headwinds for the pound.
Comments
Comments are closed for this article.