Sterling at 1-mth high vs euro on hopes for solid services data

Mon Nov 5, 2012 2:38pm IST

* Single currency slips to one-month low vs sterling

* Investors don't expect QE at Thursday's BoE meeting

* Stronger services data could support rate hold view

By Philip Baillie

LONDON Nov 5, (Reuters) - The euro fell to a one-month low against sterling on Monday with investors expecting positive UK services sector data later and increasingly lowing expectations of more monetary easing this week.

UK's purchasing managers' index survey due at 0928 GMT is expected to show growth in activity, a Reuters poll showed, with economists expecting a number above 50, indicating expansion.

In contrast, much of the euro zone is struggling with a sharp downturn and fresh uncertainty about whether Greece can pass crucial labour reforms for it to receive more financial aid also weighing down on the single currency.

The euro fell against sterling to a one-month low of 79.86 pence, its lowest since Oct 2. Against the buoyant dollar, the pound fell 0.2 percent to $1.6000.

A stronger services indicator would add to a more optimistic picture of the UK economy, with third-quarter growth coming in higher than expected and healthier construction data last week, would all help to bolster the pound.

Stronger services data could also reduce expectations of the Bank of England opting for more asset purchases, or quantitative easing. More QE usually hurts a currency as it increases the supply.

"We expect services to be largely constructive, but the main event this week is the monetary policy committee's meeting on Thursday," said Paul Robinson, head of European FX research at Barclays Capital.

"Following comments of dampened expectations of quantitative easing from members we expect rates to be held."

Most analysts expect the Bank of England's monetary policy committee to hold rates and keep its asset purchase programme unchanged until early 2013.

Some analysts, however, expect the bank to slightly increase its stimulus programme. And that uncertainty is likely to check sharp gains in the pound, traders said.

"From the BoE we expect a 25 billion pound boost to the QE securities purchasing limit," Credit Agricole told clients in a morning note.

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