* Single currency pares losses versus sterling
* Weaker-than-expected UK PMI boosts BoE doves
* Most investors don't expect QE at Thursday's BoE meeting
By Philip Baillie
LONDON Nov 5, Sterling eased from a one-month
high against the euro on Monday after the UK services sector
expanded at a lower-than-expected pace and wrongfooted some
investors who expected a robust reading.
The October UK purchasing managers' index survey showed
expansion in the services sector, but came in lower than
expected at 50.6 against analysts' forecasts of 52, for its
lowest reading in almost two years.
Monday's data raises the chances that the economy could
shrink again between October and December after surprisingly
strong expansion in the third quarter.
Earlier the single currency had fallen broadly on fresh
uncertainty about whether Greece can pass crucial labour reforms
for it to receive more financial aid.
The euro was flat on the day at 80.04 pence, recovering from
a low of 79.86 pence, its lowest since Oct 2. Near
term resistance is at its 55-day moving average of 80.12 pence
while offers are cited above 80.30/40 all of which could make
the single currency struggle to gain further.
Against the buoyant dollar, the pound fell 0.3
percent to $1.5971, with traders citing UK exporters' bids
at$1.5980 and support at $1.5935--the low struck on Oct 24.
"The services data has knocked the wind out of the sails of
sterling a little, but it is likely the upside is going to
continue," said Jeremy Stretch, head of currency strategy at
CIBC World Markets.
He expected the euro's gains against sterling to be capped
around 80.25 pence in the short term as underlying risks in
Europe are more pronounced.
A stronger services indicator was expected to add to a more
optimistic picture of the UK economy, with third-quarter growth
coming in higher than expected and healthier construction data
last week, all helping to bolster the pound.
DOVISH CASE BOOSTED
Slightly weaker-than-expected services data, however, could
strengthen the case for more asset purchases known as
quantitative easing (QE) from the Bank of England. More QE
usually hurts a currency as it increases the supply.
But CIBC's Stretch said the PMI data was unlikely to alter
the course of QE, although could slightly boost the case for
more easing from some members of the Bank of England's monetary
policy committee (MPC), which meets on Thursday.
Some analysts expect the BoE to slightly increase its
stimulus programme. That uncertainty is likely to check sharp
gains in the pound before the meeting, traders said.
"From the BoE we expect a 25 billion pound boost to the QE
securities purchasing limit," Credit Agricole told clients in a
Most analysts, however, expect the MPC to hold rates and
keep its asset purchase programme unchanged until early 2013.
"Following comments of dampened expectations of quantitative
easing from members we expect rates to be held," said Paul
Robinson, head of European FX research at Barclays Capital.