LONDON: Sterling rose on Thursday on expectations that UK GDP data would show the economy grew slightly in the first quarter, avoiding a "triple dip" recession.
However, the margin was slim and economists saw a risk of a negative reading when the figures are released at 0830 GMT.
Analysts said the pound would be vulnerable to a more pronounced reaction if the economy is shown to have contracted, because the balance of expectations was that the UK would not slip back into recession.
"There's a surprising confidence in the market that UK GDP will rise by 0.1 percent or better. Even if it is a flat reading I think sterling will take a battering and fall by at least a cent," said Richard Driver, analyst at Caxton FX.
As well as raising concerns about the fragility of the UK economy, another recession would increase the chances that the Bank of England will opt for a further bout of quantitative easing, possibly as soon as next month.
That would be negative for the pound as quantitative easing involves asset purchases by the bank which increases the supply of sterling.
Gross domestic product (GDP) is expected to have risen by a very slight 0.1 percent from January to March, according to the consensus in a Reuters poll. If confirmed this would boost sterling.
Sterling was up 0.2 percent at $1.5302, having broken out of a range between $1.52 and $1.53 held over recent days. It faced resistance at the April 11 peak of $1.5412.
A fall in the pound could see it target $1.5196, a low hit earlier this week, with traders saying a break below $1.5180 may see it push lower as stop-loss sell orders are triggered.
The euro was flat at 85.24 pence, staying above a more than one-week low of 84.975 pence reached on Wednesday.
Analysts at Lloyds said poor weather in March in the UK may have affected construction and services, increasing the risk that first quarter GDP contracted.
"A negative print will see the UK back in recession, and will trigger initial sterling selling; this could see sterling/dollar break below the $1.52 level, but we doubt this would see sustained sterling downside," they said in a note to clients.
Some traders said the pound was benefiting from the prospect of sterling-positive flows if US company Verizon Communications Inc bids to take full control of Verizon Wireless by buying the stake of UK joint venture partner Vodafone Group Plc.
People familiar with the matter said on Wednesday that Verizon had hired advisers to prepare a possible $100 billion cash and stock bid.
Comments
Comments are closed for this article.