* Sterling close to flat versus euro, dollar
* Little reaction to BoE, ECB policy decisions expected
* Fitch warns on UK's triple-A rating
By Philip Baillie
LONDON, Dec 6 Sterling steadied against the euro
on Thursday but looked vulnerable after a gloomy autumn budget
statement prompted ratings agency Fitch to warn that the UK
could lose its prized AAA rating.
Strategists said moves in the pound against the euro were
likely to be muted before the Bank of England (1200 GMT) and
European Central Bank (1245 GMT) rate decisions.
"Both meetings today are set to be non-events so barring any
major surprise where the ECB cuts rates, we could see
euro/sterling lower, there are slight risks to the downside,"
said Geoffrey Yu, currency strategist at UBS Warburg.
The euro was flat on the day at 81.16 pence,
having risen to a 5-week high of 81.47 pence on Wednesday.
Analysts said the pound could stay under further pressure
after rating agency Fitch said Britain's credibility had been
damaged by finance minister George Osborne's new forecasts,
which showed the country would not meet a key debt reduction
"Fitch and Moody's have had gilts on negative outlook for a
while so its is no surprise," Yu said. "If one of them
downgrades the UK's triple-A status that probably not be the end
of the world, but if it was two that might see some forced
Fitch has a negative outlook on Britain's AAA credit rating
and has said that it would review this again after Osborne's
2013 budget statement early next year, which some say is
"The triple-A rating is everything. It is what has supported
sterling from selling off over the last few years and if that
were to go you would see gilt yields rising and sterling
dropping like a stone," said Christian Lawrence, currency
strategist at Rabobank.
The pound was flat versus the dollar to $1.6109,
close to a one-month high of $1.6131 hit earlier this week.
UK trade data showed Britain's trade deficit widened more
than expected in October, although the pound showed a muted
Despite the flow of bad news about the economy, the BoE is
widely expected to keep total of bond-buying in its stimulative
quantitative easing policy unchanged at 375 billion pounds and
interest rates on hold at 0.5 percent.
Most investors are also betting the ECB will keep rates on
hold at 0.75 percent at its policy meeting on Thursday.
Market players will look for clues about whether ECB
President Mario Draghi will show a greater willingness to cut
borrowing costs in the future, which could knock the euro
That could see the pound higher against the single currency.
Analysts point to the fact that the pound is seen as a
safe-haven currency against the euro, given the UK's triple-A
status will also help the pound.
Citibank told clients in a note it expects the UK to
maintain its triple-A status, given Osborne's deficit-busting
programme is a credible solution.
"The Coalition government seems on course to deliver fiscal
austerity comparable to the measures we see elsewhere in
Europe," Citi said in a note. "As a result, sterling should
continue to serve as a safe haven proxy for the euro.