Sterling hits one-month high vs dollar, gains seen fragile

Tue Dec 4, 2012 6:25pm IST

* Sterling rises past stops to hit one-month high vs dollar

* Long positions could be threatened by soft UK data

* Real money investors cited as buyers of sterling

By Philip Baillie

LONDON, Dec 4 (Reuters) - Sterling struck a one-month high against a broadly weaker dollar on Tuesday as reported buying by long-term investors helped it shake off a weaker-than-forecast UK construction PMI reading.

The data, showing British construction activity shrank slightly in November and that confidence about the next 12 months fell to its lowest in almost four years, was a blow to the government the day before finance minister George Osborne's mid-year budget statement.

However, sterling barely reacted. Later it hit a one-month high of $1.6130, its highest level since Nov. 2, after triggering stop-loss buy orders just above $1.6120. Reported option barriers at $1.6150 were likely to check near-term gains.

"Sterling looks fully-valued up at these levels unless we see further topside impetus given by the services PMI on Wednesday," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

"Sterling is holding up but I would not want to chase it much higher. We had been seeing risk sentiment better in the morning that might have helped sterling/dollar."

A Reuters poll for the services PMI forecasts a reading of 51.1 for November, showing a slight pick-up in growth compared with 50.6 the previous month.

Earlier on Tuesday, data showed British retail sales edged up in November, though by less than analysts were expecting.

AUTUMN STATEMENT

Investors will focus on what Osborne will say in his "autumn statement" in parliament on Wednesday. There is speculation that he is likely to miss his debt and growth targets, raising risks to Britain's triple-A credit rating.

"We tend to be seeing more of the same from Osborne, it is probably going to increase speculation around the AAA credit rating," said Richard Driver, analyst at Canton FX.

"Growth is going to be poor in the fourth quarter which is bringing the rating agencies into play. More of the same is not necessarily good for sterling."

The pound was flat against the euro, with the shared currency at 81.04 pence, just off the five-week high of 81.325 pence it posted last week.

The euro gained broad support from better-than-expected terms for a Greek debt buyback, announced on Monday, although gains against the pound were expected to be limited.

Some analysts said the European Central Bank's news conference on Thursday might prompt euro/sterling to grind lower if the bank revises down its view of euro zone growth.

"The euro could lose rate advantage across the board if market expectations of a rate cut grow following the ECB press conference," Citi strategists told clients in a note.

  • Most Popular
  • Most Shared

Pending Reform

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage