Sterling holds above six-week lows versus dollar

Sterling held above six-week lows against the dollar on Tuesday, with risky currencies hampered by worries over the euro zone debt crisis and failed plans to cut the U.S. deficit, but market players expected the pound to be well supported on dips.

Sterling fell to a six-week low on Monday of $1.5612 as markets fretted over the likely failure of a U.S. congressional super-committee to reach a deal on $1.2 trillion in deficit reductions, and persistent concerns over Europe's debt crisis.

"It should be a struggle for the dollar to make more ground in light of the super-committee failure and the market is pretty long of dollars now," said Adrian Schmidt, currency strategist at Lloyds Banking Group.
"I think the $1.56 area is a reasonable place to get long of sterling but there are downside risks to that view if we see a sharp decline in equities," he added.

Sterling was up slightly on the the day at $1.5680, holding above Monday's low of $1.5612. Technical analysts saw support at $1.5613, the 61.8 percent retracement of the pound's October rally.

The euro was up slightly versus sterling at 86.30 pence , with traders saying the market looked to be overly short of euros in the near-term, which was helping it to rebound. Offers were highlighted in the 86.50 region.
"Levels in the pair between 86.00 and 86.50 should be good areas to sell, targeting a move back to 85.50 or below," said Stephen Gallo, head of market analysis at Schneider FX.

UK DATA

UK public sector finance data due for release at 0930 GMT is expected to show the government's preferred accruals-based measure of public sector net borrowing excluding financial sector interventions falling compared to last year.

The weakening economy is seen slowing the deficit improvements, however, and economists increasingly expect finance minister George Osborne to miss his borrowing targets.

Greater focus will be placed on Wednesday's release of minutes from this month's meeting of the Bank of England's monetary policy committee.

Economists expect the minutes to reflect readiness to extend quantitative easing further, which the central bank flagged with its sharply lower growth and inflation forecasts.

"The minutes shouldn't hold any surprises after the inflation report highlighted the potential for more QE which I think is now priced in by the market," said Schmidt.

read more: Olympus Wealth Management