* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Dec 8 Sterling jumped 1 percent against
a broadly weaker euro on Thursday after the European Central
Bank extended its quantitative easing programme for a longer
period than expected, albeit at a slower pace.
The ECB said it would continue buying bonds until at least
December - three months longer than the six-month extension most
investors had been expecting. And although it would from April
reduce the size of its monthly purchases to 60 billion euros,
from 80 billion now, that still means that overall, more money
would be pumped into the economy than forecast.
The euro initially surged across the board, hitting a
one-week high against sterling of 85.72 pence as
markets reacted to the scaling back of asset purchases. But it
quickly turned around and fell as much as 1 percent on the day
to as low as 84.29 pence, before recovering a touch.
"That lengthening of the time period in which there's QE
being conducted means - even if you assume a best case scenario
of a fairly abrupt taper in 2018 - you're still talking about
the middle of 2018 as being the very earliest that we'd get an
end of QE in Europe," said MUFG strategist Derek Halpenny.
Against a stronger dollar, sterling was down half a percent
at $1.2566. It was up, though, half a percent on a
trade-weighted basis, recovering from its worst daily
performance in two months after weak industrial data and a
parliamentary vote to stick to the British prime minister's
Brexit timetable weighed on the currency.
British lawmakers on Wednesday backed Theresa May's plans to
trigger the start of formal talks with other European Union
members on leaving the bloc by the end of March, after she
headed off a rebellion in her party over a lack of insight into
the government's strategy to leave the EU.
May still faces obstacles - the High Court ruled last month
that the government needs parliament's assent to invoke Article
50, the formal mechanism for starting Brexit talks. The
government is challenging that ruling in the Supreme Court.
But the vote in favour of May's timetable disappointed those
investors who had been hoping that Brexit would be delayed.
"Sterling was hit quite hard yesterday by a solidifying of
expectations that we will get a (Brexit) vote by the end of
March," said RBC Capital Markets currency strategist Adam Cole.
The pound was also hit on Wednesday by data showing falls in
sterling since the EU referendum had failed to boost Britain's
manufacturers in October as industrial output suffered its
biggest monthly drop since 2012.
(Editing by Robin Pomeroy)