* Market focus on UK mid-year fiscal statement on Wednesday
* BoE expected to hold rates, not increase QE on Thursday
* Sterling shows little reaction to UK manufacturing PMI
By Anooja Debnath
LONDON, Dec 3 Sterling hit a one-month high
against the dollar on Monday on corporate and sovereign demand,
although the possibility of a gloomy mid-year fiscal statement
threatened to weigh on the pound.
Sterling climbed to $1.6099, its highest level
since Nov. 2, before paring gains slightly to last trade at
$1.6090, up 0.5 percent on the day.
Traders citing demand from corporates to meet dividend
payments and on the downside stop-loss sell orders were reported
UK finance minister George Osborne gives his "autumn
statement" to parliament on Wednesday, after saying on Sunday
that Britain would take longer to deal with its debt pile and
that a recovery will be sluggish.
Economists speculated the independent Office for Budget
Responsibility may lower growth forecasts and could also predict
Britain will miss its debt-reduction goal.
This in turn could endanger Britain's triple-A credit rating
which has spurred demand for sterling throughout much of this
year as investors bought UK gilts while fleeing the euro zone
"Unless the Office for Budget Responsibility does surprise
us on those forecasts, the risks are slightly weaker around the
statement," said Paul Robson, currency strategist at RBS.
Morgan Stanley, whose FX positioning tracker showed
investors had turned neutral on the pound from long positions,
said in a note that Osborne was likely to opt to miss the fiscal
targets rather than implement more austerity, and both outcomes
would weigh on sterling.
Earlier in the session, the pound barely reacted to
better-than-expected UK manufacturing data which came in at
49.1, above expectations but below 50, indicating contraction.
The euro traded flat at 81.12 pence, not far
from a five-week high of 81.325 pence hit on Friday when German
lawmakers approved an aid deal for Greece.
The single currency got a slight boost after Spain formally
requested European funds to recapitalise its crippled banking
A stronger euro was helped on Monday by short euro positions
being unwound as yields on euro zone government bonds fell and
after Greece said it would conduct its bond buy-back programme
to trim the country's ballooning debt.
QE IN FOCUS
The Bank of England's Monetary Policy Committee (MPC) will
vote on Thursday on whether to increase the bank's asset
purchase scheme, known as quantitative easing (QE), although
most economists expect it to hold fire.
Moderate initial take-up on Monday, in the BoE's Funding for
Lending Scheme (FLS), which offers banks cheap finance and aims
to spur growth in the economy in ways QE has failed to, further
reduced bets on the Bank embarking on more easing some
The Bank has held interest rates at record lows of 0.5
percent since March 2009 and is widely expected to maintain
total asset purchases at 375 billion pounds at its next meeting
on Dec. 6.
"The forecast for more QE has been taken off for now because
a lot of BoE members are of the view FLS is moving in the right
direction," said Kiran Kowshik, currency strategist at BNP
Paribas. "From that perspective it could be slightly positive