Sterling gains versus dollar and euro as GDP data eases QE fears

Tom Tong29/Oct/2010Currency Updates

GBP

Sterling rose one percent against a broadly weaker dollar and outperformed the euro on Thursday as investors looked to push the currency higher in a choppy market, offsetting disappointing UK housing data.

Nationwide data showing UK house prices in October fell for the third month in four earlier knocked the pound to session lows, but traders said persistent buying from Middle East accounts helped it rebound higher. Sterling has benefited since stronger-than-expected third quarter UK gross domestic product data on Tuesday eased concerns about an imminent need for further quantitative easing from the Bank of England.

But analysts said the UK economic outlook remained cloudy, with QE a possibility if the economic situation worsens, although the BoE is expected to leave policy on hold at its meeting next week.

EUR

The euro lost ground on Thursday after Germany’s retail sale figures unexpectedly dropped for a second straight month in September.

Sales, adjusted for inflation and seasonal swings, fell 2.3 percent from August, when they declined 0.4 percent, the Federal Statistics Office in Wiesbaden said in an e-mailed statement today.

Germany is relying on domestic spending to prop up economic growth as demand for its exports wanes with the slowing global recovery. While unemployment fell to an 18-year low in October and consumer and business confidence have gained, governments across the 16-nation euro region are cutting spending to rein in budget deficits, increasing uncertainty over the economic outlook.

USD

The US dollar fell on Thursday against its most traded counterparts, coming back under pressure after a brief respite as traders anticipate the Federal Reserve will announce plans next week to buy a massive amount of government bonds – a process that could weaken the greenback. The dollar then fell further after the Labour Department said first-time filings for unemployment benefits in the latest week fell by 21,000 to 434,000, more than analysts expected.

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Written by Tom Tong

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