Pound rises against euro, dollar on UK optimism

Mon Dec 23, 2013 4:44am EST

Related Topics

* Sterling up 0.2 percent against dollar, euro

* Pound on track to post gains against dollar in 2013

* BoE worried strong pound threatens recovery

By Shadi Bushra

LONDON, Dec 23 (Reuters) - Sterling firmed against the dollar and the euro on Monday, as investors remained buoyant about the prospects of the British economy going into the new year.

The pound was up around 0.2 percent against both the dollar and the euro, trading at $1.6370 and 83.60 pence per euro respectively.

The pound is on track to post gains against the dollar this year, with gains picking up in the last six months as the UK economy improved faster than many of its European peers.

Last week saw a string of positive economic indicators that highlighted Britain's slowly strengthening recovery.

"That will have a small bearing, but I don't think there's an ongoing move on the back of strong data from last week," said Richard Wiltshire, chief FX broker at ETX Capital. "We saw the moves and now most markets are quite happy within their ranges. People are quite happy to coast to the year end."

Apart from thin trading conditions sidelining many, investors are likely to be wary of the pound in the near term after Bank of England policymakers warned that a substantial further appreciation of sterling would pose "additional risks to the balance of demand growth and the recovery."

BoE policymakers could step up their rhetoric against the further sterling gains, analysts said. One way they can curb sterling's gains is to reiterate their pledge to keep rates low for longer. That is likely to put downward pressure on rising short term market rates.

"We remain cautious on sterling/dollar as the BoE is unlikely to start raising interest rates before the Fed," said Mansoor Mohiuddin, head of FX strategy at UBS.

"Both central banks may only begin hiking in the second half of 2015. But sterling should make renewed gains against the euro towards 0.81 pence as the European Central Bank keeps its explicit easing bias in 2014."

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