(Updates after BoE decision, adds quote) * Sterling rises after BoE keep policy unchanged * Euro/sterling off three-week highs, awaits ECB FREE GUIDES AND REPORTS FROM DIANOMIADVERTISEMENT Free Spread Betting Guide Register for our FREE 5-chapter guide and learn how to spread bet now Find out more * Poor UK fundamentals to keep investors wary of pound By Anirban Nag LONDON, Aug 2 (Reuters) - Sterling was firm against the dollar and pared losses against the euro on Thursday after the Bank of England left interest rates and its quantitative easing programme unchanged. But investors were cautious about initiating large positions ahead of a news conference by European Central Bank President Mario Draghi, who has pledged to take measures to preserve the euro. Recent UK data has been weak, with the economy contracting more sharply than expected. Traders and investors had therefore been wary of possible further monetary easing by the BoE, although relatively few had expected it to come on Thursday. Sterling was up 0.4 percent at $1.5590, compared with $1.5557 before the announcement. Offers were cited at $1.5600, with traders reporting healthy demand for the pound at lower levels from Asian central banks. The euro was up 0.2 percent at 78.90 pence, barely changed from 78.88 pence before the BoE announcement and staying below the three-week high of 79.065 it set earlier in the day on speculation the ECB could take bold steps to contain the sovereign debt crisis. "There were no surprises from the BoE, but there are expectations of more measures from the ECB which could see euro/sterling move towards 80 pence," said John Hardy, currency strategist at Saxo Bank. The ECB kept rates unchanged on Thursday, but focus will be on the press conference, where speculation for decisive action has mounted after Draghi raised hopes of strong measures to stem the crisis. While European paymaster Germany is opposed to measures like sovereign bond purchases by the ECB, Draghi's comments have nonetheless supported the euro in the past few days. Traders said if Draghi followed up his words with action, investors will unwind large bearish positions against the euro. On the other hand, any disappointment from the ECB could see the euro drop sharply against most major currencies, including the pound. It would also hurt sentiment towards riskier currencies and assets and weigh on sterling against the safe-haven dollar. Many investors are cautious about sterling given the UK's strong trade links with the euro zone. The sharp downturn in the region has kept the UK mired in a recession, with latest manufacturing activity offering little solace. A PMI survey on Wednesday showed Britain's manufacturing sector shrank at its fastest rate in more than three years in July. And while the construction sector PMI on Thursday surprised on the upside, it did little to alter expectations that the BoE could ease policy further in coming months. Minutes to the BoE's policy meeting in July showed policymakers were softening their stance on cutting interest rates, though any move was not likely to come for several months. "More accommodation from the BoE and growing concerns about the UK economic and sovereign rating outlook should remain important pound negatives going forward," said Valentin Marinov, currency strategist at Citi. (Reporting by Anirban Nag; Editing by John Stonestreet)

Source