Sterling recovers

Sterling rose against the euro on Friday, recovering early losses, and made robust gains against the dollar on steady demand from corporates, but expectations of more monetary stimulus by the Bank of England were likely to check gains. The pound initially fell to a 10-week low against the euro as it was sold off by model funds and real-money investors after Bank of England policymaker Paul Fisher said the outlook for the British economy was still uncertain and he was keeping an open mind on whether more easing would be required.
That chimed with dovish minutes from the Bank of England's latest rate-setting meeting, released earlier in the week, and drove some investors to cut their long sterling/short euro positions. But that selling ran out of steam with some investors drawing comfort from encouraging economic data.
Data released on Friday showed headline UK gross domestic product contracted 0.2 percent quarter-on-quarter in the fourth quarter, with a modest downward revision in the year-on-year rate, to 0.7 percent from 0.8 percent. "The GDP data showed the UK consumer was still holding up, while the euro's move higher against sterling didn't last too much longer above 85 pence," said Jeremy Stretch, head of currency research at CIBC World Markets.
The euro was last down 0.2 percent at 84.845 pence, having risen to 85.06 pence, its highest level since December 12. Traders cited selling by Swiss investors in the euro, which saw the common currency give up gains against sterling. Near-term resistance for the euro is seen around 85.25 pence, the 50 percent retracement of its drop from a high of 88.31 pence in late October to a low 82.20 pence in early January, and then at 85.55 pence - the high struck on December 12.
The common currency has been higher against most major currencies this week on investor relief that a second bailout package for Greece was approved by euro zone governments, helping stave off a chaotic sovereign default in March. "From here on it's a more neutral story and as we get to the 85.20 pence and 85.50 pence area, it will become harder for the euro to push higher," said Adrian Schmidt, FX strategist at Lloyds TSB.
An overall improvement in risk appetite bolstered sterling along with some steady buying by corporates, traders said. The pound, which still broadly tracks stocks, also got a boost from a better-than-expected US consumer sentiment reading. Sterling was last up 0.8 percent at $1.5866, tripping stops above $1.5820 and $1.5865 and extending gains into a second straight session. Near term resistance is at its 200-day moving average of $1.5906, with near term support seen at its 100-day moving average of $1.5700.