Sterling edged up from near 3-1/2 month lows against the dollar in thin trade on Wednesday, as year-end position adjustments drove trading although a fragile outlook for the UK economy curbed gains. The pound has been under pressure since last week as higher than expected unemployment data, falling house prices, a hike in taxes, cuts in government spending and softer growth than forecast cloud the economic picture going into 2011.
"The best performing assets of the year 2010 will remain in demand as portfolio managers increase the weighting of those assets at the expense of the underperformers," BNP Paribas said in a note. Sterling was up 0.3 percent on the day versus the dollar at $1.5428, with traders attributing the buying to reserve managers. Its move above $1.5410 saw some small stops being triggered.
The latest bout of buying also saw it gain past its 200-day moving average at $1.5398. The pound had fallen below that level to hit a low of $1.5344 hit on Tuesday in very thin conditions. That was its lowest level since September 10. The dollar lost some ground as some reserve managers sought currencies other than the greenback. The dollar index was down nearly 0.2 percent at 80.22, off Tuesday's lows of 79.596. The euro was slightly lower at 85.08 pence, holding below a four-week high of 85.92 hit on Tuesday. Traders said there were bids around the 85 pence area.