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Sterling hits 1-mth high vs euro; UK jobs data caps rise
March 14, 2012 / 12:37 PM / 6 years ago

Sterling hits 1-mth high vs euro; UK jobs data caps rise

* Sterling hits 1-month high vs euro of 82.955 pence

* Comes off highs on data showing rise in UK unemployment

* Sterling edges up vs dollar, hits 9-month high vs yen

* Sources say Britain could start selling 100-yr bonds

By Jessica Mortimer

LONDON, March 14 (Reuters) - Sterling rose to a one-month high against the euro on Wednesday, lifted by a better relative outlook for the UK economy, though it edged off highs after data showing a rise in UK unemployment.

Having broken through chart support, renewed gains could see the pound test the early January low of 82.22 pence.

The pound has been buoyed by a recent improvement in UK economic data, including retail sales and housing numbers, which have lessened the risk of the country slipping into recession and of further monetary easing by the Bank of England.

By contrast, a weak euro zone economy and concerns about the risks of the debt crisis spreading beyond Greece continued to weigh on the single currency.

“Some of the data out of the UK and the U.S. recently indicates that credit channels may be starting to open up, at least relative to the euro zone,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

This should boost the dollar and sterling, to the detriment of the single currency, he said.

The euro fell to 82.955 pence, breaking below the early March low of 83.13 pence, where there was also support from a trendline drawn on the charts from the January low.

But the euro trimmed losses and last traded at 83.23 pence as data showed the UK unemployment rate held at a 13-year high in the three months to January while the number claiming jobless benefit last month rose more than forecast.

However, the common currency was well below a peak of 84.24 pence hit on Tuesday, a level which analysts said could now act as stiff resistance. A break below the Feb. 16 low of 82.77 pence could pave the way for a drop towards the 2012 trough.

RELATIVE RATES

Analysts said since the European Central Bank’s second injection of cheap 3-year funds last month the euro has become an increasingly favoured currency to fund riskier trades, which has contributed to its weakness versus sterling.

The pound has been helped by a recent widening in the difference between short-term UK and German bond yields , enhancing the appeal of sterling to investors.

“There’s been a huge correction (in euro/sterling) from yesterday to take it more in line with where relative rates are,” said John Hydeskov, chief analyst at Danske Bank, describing Tuesday’s move higher as an “overreaction”.

Traders said reported demand from a U.S. investment bank and longer-term investors lifted the pound, as well as buying of sterling versus the Japanese yen which helped the UK currency to hit a 9-month high around 131.50 yen.

Sterling was steady against an otherwise firmer dollar, trading at $1.5699, after the Federal Reserve sounded a less downbeat note on the U.S. economic outlook.

The pound pulled comfortably away from Monday’s seven-week low of $1.5603.

Some analysts said a report that Britain could start selling 100-year and perpetual bonds in an attempt to lock in low market interest rates to cut the future costs of servicing debt was also supportive for sterling.

The move may ease the UK’s debt burden, while some market players interpreted it as a suggestion that UK bond yields have hit a trough and are likely to rise from here, which would be supportive for the pound.

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