Sterling near 22-month high vs euro, eyes on US data

LONDON: Sterling hit a 22-month high against the euro on Thursday before retreating slightly as traders wagered on an increasingly divergent monetary outlook between Britain and the euro zone.

Currency dealers are betting the Bank of England will tighten monetary policy before its European peers, following a run of soft data from the 18-member monetary union. On Tuesday a survey showed German investor morale at its lowest in 1-1/2 years.

Sterling has been rising over the past year as Britain's economy has shown signs of a strengthening recovery. The currency has gained almost 15 percent against the dollar and almost 10 percent against the euro over the past 12 months.

But while it has gained more against the dollar over the year, more than half of the pound's gains against the single currency have come in the last four months.

"There is concern about euro zone equity markets, there is concern about the overall economy, so the obvious focus now is for people to buy sterling against the euro," said Neil Mellor, a currency strategist at the Bank of New York Mellon.

Traders said data released on Wednesday showing weak UK wage growth would not dent confidence in the pound.

"The composition of the rest of the employment data provided positive signals for sterling, supporting the view of broadening strength in the UK economy," said analysts at Morgan Stanley in a morning research note.

Sterling hit the 22-month high against the euro early on Thursday before weakening slightly to trade at 79.80 pence per euro. The euro was up 0.2 percent on the day. Against the dollar, the pound edged down 0.15 percent, last trading at $1.7114.

The dollar has gained since Tuesday, when U.S Federal Reserve Chair Janet Yellen sounded a slightly less dovish tone than previously, fuelling market speculation that she is leaning towards tightening monetary policy.

And on Wednesday a senior Federal Reserve official, Dallas Fed President Richard Fisher, added to that by saying the U.S. central bank was "likely" to start raising interest rates early next year and should begin the process of shrinking its huge balance sheet in October.

Traders will be looking closely at U.S. weekly jobless and housing market data later on Thursday for further signs that the economy is picking up speed, following a run of stronger data.