Sterling rose against the dollar on Wednesday, supported by positive risk sentiment and a firm euro, but was briefly vulnerable after Bank of England policy minutes hinted more asset purchases may be needed to help Britain's ailing economy.
Bank of England policymakers voted unanimously to resume quantitative easing this month, and considered injecting even more than the 75 billion pounds agreed, minutes to the BoE's October meeting showed.
Sterling fell slightly after the minutes but held above the $1.5700 overnight low and soon recovered back to hit a session high of $1.5802 to trade with gains of around 0.6 percent on the day.
In a speech on Tuesday, Governor Mervyn King defended the decision to launch another round of quantitative easing (QE), citing a slowing world economy, especially in the euro zone, as threatening the Monetary Policy Committee's strategy of rebalancing the UK economy.
"The minutes reinforce the view that the BoE is really concerned about the international environment, in particular the situation in the euro zone, and they stand ready to do more QE rather than less," said Kiran Kowshik, currency strategist at BNP Paribas.
"We therefore remain bearish on sterling but with the markets trading on headlines ahead of Sunday's EU summit, it's better to have a neutral view on sterling against the dollar for now," he added, preferring a short sterling position against the Canadian dollar .
Most market players had anticipated a unanimous vote for more asset purchases with a slight risk that the BoE's chief economist Spencer Dale may have voted for less than the agreed 75 billion pounds or even none at all.
Gains in European stocks and a broad rise in the euro helped the pound rise but market players said further upside would be limited.
"It's tough to be anything other than a seller of sterling unless the risk environment improves dramatically," said Jeremy Stretch, currency strategist at CIBC.
"The prevailing wind is blowing strongly in favour of more monetary stimulus," he said.
Near-term resistance for the pound is a trendline taken from the August high which comes in around $1.5820, followed by this month's high of $1.5853.
"The market may try to push higher in cable but I'll be wanting to fade into any move above 1.5820-40," said a London-based trader.
The pound was undermined on Tuesday by data showing UK consumer price inflation rose to 5.2 percent in September, a three-year high, at a time when unemployment is rising and consumer sentiment remains fragile.
The euro was up 0.2 percent against sterling at 87.65 pence on Wednesday, with the single currency gaining support ahead of this weekend's European Union summit on hopes plans to boost the euro zone's bailout fund will be announced.
However, two senior euro zone officials said no agreement on boosting the fund was in place yet.
Traders reported offers into the 88.00 area with stop-losses placed at 88.20. A break above 87.97 would take the single currency to it highest in six weeks against the pound.
read more: Olympus Wealth Management
No comments:
Post a Comment