LONDON: Sterling was steady against the euro on Thursday, as caution prevailed ahead of a two-day European Union summit which begins later in the day while the pound edged higher against the US dollar along with other perceived riskier currencies.
German leaders have deflated expectations of any breakthrough from the two-day summit, but investors are reluctant to take a very bearish view on the euro in case any progress in tackling the debt crisis is made.
Some traders said a roadmap towards a common banking union or a decision at the summit to activate the euro zone's rescue fund to start buying Italian and Spanish government debt and lower their borrowing costs could provide relief to the euro.
As such, many are choosing to square up their bearish positions against the euro heading into the summit.
Traders are also waiting for the revised data for the first quarter gross domestic products in the UK and analysts expect no change to the figures. It was surprisingly revised down to 0.3 percent from 0.2 percent in May.
The euro was flat against the pound to 80.00 pence, off a four-week low of 79.85 pence with offers at 80.30/40 pence.
Against the dollar, the pound was up 0.25 percent at $1.5605 with sell side stop loss orders cited at $1.5530. The dollar was broadly lower taking a pause from the gains made in the past two weeks as safe-haven inflows took a breather.
"What you see is generally dollar weakness. It's not specifically cable, but dollar is weaker against all the majors this morning," Adam Cole, global head of FX strategy at RBC Capital Markets said.
"I think it's probably a combination of positions being squared up ahead of the euro zone summit, and possibly some month-end related flows as well... So it's more like to be those two technical flows."
With no nasty surprises expected from the GDP data, investors focus will be on the outcome from the EU summit. Nevertheless, the data will confirm that the UK is in the midst of a recession and will cement expectations that the Bank of England will resort to more quantitative easing next month.
That is likely to see investors chase UK gilts and will provide sterling solid support in the near term.
"With gilt yields near historic lows, the fact that the UK has control of its own central bank and monetary policy makes it a relative safe haven from events in Europe, on a fiscal level, if not an economic one," said Michael Hewson, market analyst at CMC wrote in a note.
Comments
Comments are closed for this article.