Sterling steady as investors await BoE, ECB meetings

LONDON: Sterling was steady against the dollar on Wednesday, pausing ahead of central bank meetings from the Bank of England and the European Central Bank the following day.

The pound traded at $1.6062, holding above a low of $1.6010 hit last week, its weakest in a month.

"(Sterling/dollar) had a narrow trading range yesterday but because of the Bank of England and ECB meetings tomorrow it is likely to be the same today," said Steve Barrow, head of G10 currency research at Standard Bank.

"Markets have opened up the year with a fairly positive frame of mind with respect to equities and fixed income, and that generally provides a reasonable environment for riskier assets and currencies, perhaps giving sterling an advantage over the dollar."

However, the pound was expected to stay well below a 16-month high of $1.6380 hit last week.

The Bank of England is widely expected to keep interest rates on hold at its meeting and not make any additional asset purchases to stimulate the economy.

The euro was flat versus the pound at 81.40 pence, after three straight session of gains.

Investors will be closely watching the ECB's post-meeting news conference on Thursday for hints of a future rate cut.

Barrow said the euro could edge higher against sterling if the ECB does not cut rates on Thursday, which a small number of economists expect.

The pound showed little reaction to data which showed the UK trade data narrowed in November, although not by as much as analysts had expected.

But sterling was seen vulnerable to further evidence of weakness in the UK economy that may add to concerns the economy may have contracted in the fourth quarter of last year.

That could prompt talk of more easing by the BoE in the coming months and raise worries about the risk of a downgrade to the UK's prized triple-A credit rating.

A weak UK retail sales survey on Tuesday added to the risk of an economic contraction after last week's purchasing managers' data showed activity in the dominant services sector declined by its biggest margin in two years.

Concerns of a slowdown have led some major banks to question sterling's safe-haven status.

"The combination of receding demand for euro safe-haven proxy and lingering economic underperformance in the UK, which diminishes further the attractiveness of sterling, could suggest that we have seen the lows for euro/sterling for now," Citibank told clients in a morning note.