* Market focus on UK mid-year fiscal statement on Wednesday
* UK PMI shows manufacturing slows less than expected
By Philip Baillie
LONDON, Dec 3 Sterling held near a five-week low
against the euro on Monday and could weaken further as investors
shun the pound in anticipation of a gloomy mid-year fiscal
statement from the government on Wednesday.
The euro strengthened 0.1 percent against
sterling to 81.16 pence, close to a five-week high of 81.325 hit
on Friday when German lawmakers approved an aid deal for Greece.
Sterling, though, edged up against the dollar to
$1.6050 with traders citing demand for the pound to meet
dividend payments. Offers to sell the pound were also cited
above $1.6060 with traders awaiting the mid-year statement for
Finance Minister George Osborne's "autumn statement" to
parliament will give an indication of the UK's fiscal position
and likelihood of meeting debt targets. On Sunday he said
Britain would take longer to deal with its debt pile and that a
recovery will be sluggish.
Economists speculate the independent Office for Budget
Responsibility may lower growth forecasts and could also predict
a target to have public sector debt falling as a proportion of
national output by 2015/16 will be missed.
That in turn would endanger Britain's triple-A credit
rating, which has provided sterling much support in the past as
investors bought UK gilts while fleeing the euro zone crisis.
"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.
The euro was also helped by unwinding of short euro
positions as yields on euro zone government bonds fell and
Greece said it would conduct its bond buy-back programme to trim
the country's ballooning debt.
The pound barely reacted to better-than-expected UK
manufacturing data. The UK manufacturing PMI data came in at
49.1, above expectations but below 50, indicating contraction.
"The nonchalant reaction of sterling reflects that the
markets are not in the frame of mind to expect any policy
amendments in the near term," said Simon Smith, chief economist