Sterling eases against dollar as euro slips

Mon Jul 30, 2012 1:55pm IST

* Pound down 0.3 pct vs dollar after Friday's 5-wk high

* Market awaits further headlines on ECB rescue plan

* Investors eye Bank of England meeting on Thursday

By Michael Szabo

LONDON, July 30 (Reuters) - Sterling eased against the dollar on Monday, in line with a broadly weaker euro, as investors awaited details on European Central Bank measures to rescue the faltering euro zone and looked forward to Thursday's Bank of England meeting.

The pound slipped by 0.3 percent against the dollar to $1.5699, retreating from a five-week high of $1.5768 hit on Friday, which marked the end of a two-day, 1.6 percent rise.

"Sterling has been looking resilient over the past couple weeks. We saw big moves on Friday but we're seeing a general softening in the risk tone today," Jennifer Hau, FX Strategist at Lloyds TSB.

"The market will look for further headlines to continue the momentum we've seen, but unless we get a continuation of the comments from the end of last week, euro/dollar will probably dip lower and cable will probably follow."

Against the euro, sterling was flat at 78.22 pence, as Europe's single currency faltered ahead of a European Central Bank meeting on Thursday.

Last Thursday, ECB President Mario Draghi pledged to do whatever it takes to save the euro, while late on Friday Standard & Poor's affirmed the UK's AAA rating with a stable outlook, quelling worries after lower-than-expected second quarter GDP data.

Analysts polled last week said Britain had about a one in three chance of losing its AAA sovereign credit rating.

The market has been focused mainly on events in the euro zone and the United States, where investors are looking for signs from policymakers of further quantitative easing.

This has led to resilience in the pound despite weak UK economic data, but analysts said sterling could be vulnerable if the Bank of England signals moves towards further quantitative easing or even a 25 basis point rate cut.

The BoE's Monetary Policy Committee meets on Thursday, though strategists expect the bank to leave its quantitative easing target and interest rates unchanged. The Bank's data on consumer credit is due later on Monday, as are UK mortgage lending and money supply figures.

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