Sterling wobbles as UK housing data disappoints

Tom Tong14/Dec/2010Currency Updates

GBP

Earlier the pound was weighed down by a weak UK housing sector survey and comments from a Bank of England policymaker who suggested more monetary easing was possible if the Eurozone’s struggles worsened.

Traders also reported M&A-related buying of the euro against the pound by a US custodial, which helped keep the UK currency under broad selling pressure. The pound came under further selling pressure after Bank of England Deputy Governor Charles Bean said the bank may restart its programme to pump money into the economy if growth slows or the Eurozone debt crisis has a big impact on Britain’s economy.

The latest FX positioning data showed speculators trimmed bets against the dollar in the latest week and more than doubled net short positions in sterling, in line with increased bets against the euro.

Sterling pared losses against the dollar on Monday as a sell-off in the US currency gathered pace on worries about US public finances and after Moody’s flagged concerns about the country’s credit ratings. Up 0.32 percent, the highest position since November 23rd, sterling passed its 55 day moving average, a move seen by chartists as positive for sterling in the short term.

USD

The dollar fell toward a one-week low against the euro on prospects that yields on US assets will shrink as Federal Reserve policy makers prepare to discuss interest rates and bond purchases.

The greenback dropped against 11 of its 16 major counterparts on speculation that the Fed will signal today its open to increasing debt purchases beyond the $600 billion already announced. New Zealand’s dollar reached a 10-year low against Australia’s currency after a report showed retail sales in the smaller nation slid by the most since 1997. Taiwan’s dollar climbed to a 13-year high as strengthening trade with China helped attract funds to the island’s assets.

The dollar index, which tracks the greenback against the currencies of six major US trading partners, was at 79.258 today after declining 1 percent yesterday. Ten-year treasury yields rose two basis points to 3.29 percent, according to BGCantor Market Data, after falling five basis points yesterday.

The Fed today “may emphasize it will continue the current quantitative easing, citing the unemployment rate and sluggish inflation,” strategists at Barclays Bank Plc, led by Tokyo- based chief currency strategist Masafumi Yamamoto, wrote in a note. “Such a statement is likely to weigh on US mid-long- term yields and the dollar, especially against the yen.”

EUR

The euro was up nearly 0.9 percent against the point yesterday, moving away from a 12-week low. However, traders said the move was driven by the reported M&A-related buying, which may mean the gains could be short-lived.

Technical analysts said the downward trend will remain intact for the euro while it stays below its 200-day moving average. Trade in the euro will also be influenced by developments surrounding a summit of European Union leaders later this week.

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Written by Tom Tong

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