LONDON: Sterling fell on Friday, extending losses to hit a one-week low against the euro after weak UK data the previous day highlighted the possibility of the Bank of England opting for more monetary easing.
It hovered close to more than three-week lows against the dollar, with investors wary before the Bank of England's new governor Mark Carney takes up his post next week, creating uncertainty about the UK monetary policy outlook.
Traders and analysts said month-end and quarter-end flows were likely to dominate what could be a volatile trading day.
Sterling was down 0.15 percent at $1.5234, edging close to a low of $1.5201 hit on Thursday after data showed year-on-year first quarter economic growth was cut in half while the current account deficit widened.
The British currency showed no noticeable reaction to data on Friday showing the service sector picked up in April, adding to signs the UK economy extended its recovery into the second quarter.
"Sterling will trade on the defensive until the Bank of England rate decision on Thursday," said Stephen Gallo, currency strategist at BMO Capital Markets, adding he'd be inclined to look for opportunities to sell it against the dollar.
The pound held above chart support at the April 23 low of $1.5196, but a fall below there would leave it vulnerable to the late May low of $1.5008.
The euro rose 0.3 percent to a one-week high of 85.69 pence, with the potential to target the June 20 peak of 85.905 pence.
But analysts and traders expected the euro to stay confined to the 84-86 pence range it has been in since mid-March, except for a brief jump to 86.37 pence on April 17.
The BoE is not expected change interest rates or its quantitative easing policy on Thursday.
However, analysts said there was a possibility Carney could introduce new measures, such as issuing forward guidance on the outlook for monetary policy.
"Over the summer months the market could be left with the impression of a dovish policy from the Bank even if QE is not rekindled," Rabobank analysts said in a note to clients.
"This is likely to sap the pound of too many notions of strength."
Comments
Comments are closed for this article.