ET:Sterling dips against euro as markets focus on ECB
LONDON: Sterling edged lower against the euro on Tuesday as investors waited to see whether the European Central Bank would take bold action to tackle the euro zone debt crisis later this week.
The ECB meeting on Thursday is expected to overshadow policy decisions by the Bank of England and the Federal Reserve after last week's pledge by ECB President Mario Draghi to do "whatever it takes" to protect the euro.
The euro was up 0.15 percent at 78.14 pence, below last week's peak of 78.735.
Analysts said most currencies were likely to trade in a fairly tight range ahead of the ECB decision, with the euro staying comfortably above its recent near four-year low against the pound of 77.56 pence.
"Markets are scratching around for direction ahead of the bigger event risks later this week," said Jeremy Stretch, head of currency strategy at CIBC.
"There is greater value in being short of euro/sterling because if there is a disappointment it is more likely to come from the ECB than the BoE."
If the ECB delivers credible measures, it could boost investor appetite for taking on risk, helping sterling against the dollar, but if it disappoints markets it could lead to sharp falls in the euro and other trades perceived as higher-risk.
Traders are also mindful of the UK's close trading ties with the euro zone and its vulnerability to economic and debt problems in the region, as suggested by data last week showing a sharp contraction in the UK economy in the second quarter.
Sterling dipped 0.1 percent against the dollar to $1.5686, retreating from a five-week high of $1.5768 hit on Friday and staying below chart resistance at its 200-day moving average around $1.5741.
A Reuters poll on Monday showed 19 of 24 euro money market traders believed the ECB would revive its bond-buying programme to reduce Spanish and Italian yields, but only 10 said the bank would do so on Thursday.
A BoE decision also comes on Thursday, with the central bank widely expected to leave policy unchanged for now.
CIBC's Stretch said markets saw a very slim chance of more policy easing by the BoE on Thursday, possibly in the form of an interest rate cut. This may leave investors cautious, although most expect any rate cut will not come until later in the year.
Recent UK data has been weak, with figures on Monday showing British mortgage approvals and lending slumped in June.
