LONDON: Sterling rose against the euro on Thursday, with investors focussed on a European Central Bank meeting later in the day, and offering some respite to the pound that has been dogged by concerns about a potential British exit from the European Union.
The euro was down 0.25 percent against the pound and lower across the board amid expectations that ECB policymakers will take rates deeper into negative territory and announce more asset purchases.
But hedge funds and speculators are wary about making huge bets against the euro, having been burnt in December when ECB's easing measures fell well short of market expectations.
The euro rose almost 3 percent against the pound on Dec. 3 when the ECB's easing measures disappointed.
"The euro is lower against the pound, but given expectations are so high there is a chance that the ECB could disappoint.
That could lift the euro against the dollar and sterling," said a spot trader. Against the dollar, sterling was slightly lower at $1.42. While the currency has bounced from 7-year lows of $1.3876 struck in late February, it has failed to rise past $1.43 with investors cautious about buying it in a big way.
On Thursday, Prime Minister David Cameron warned a British exit from the European Union would put pressure on sterling.
His words come a day after Buckingham Palace dominated domestic media by saying it had made an official complaint to Britain's press watchdog over a report in tabloid newspaper The Sun headlined "Queen backs Brexit".
The palace said the monarch remains politically neutral. British voters will decide in a referendum on June 23 whether the country stays in the EU or leaves.
The latest YouGov polls show those wanting to stay in the EU are gaining ground, while bookmakers see a one-in-three chance of Britain exiting the bloc.
Investors worry that a 'Brexit' could drag down growth, push back UK rate hike expectations and also threaten the huge foreign investment flows Britain needs to balance its current account deficit, one of the biggest in the developed world at around 4 percent of output. Bank of England Governor Mark Carney this week pointed, very cautiously, to what he saw as the economic risks of Brexit.
"While we believe the risk of an actual EU exit is not large, we acknowledge that the uncertainty surrounding the vote might negatively affect business confidence, in turn delaying private investments in the country," said Monica Defend, head of global asset allocation research at Pioneer Investments.
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