Sterling eases from 7-yr high vs euro with ECB action seen likely

[LONDON] Sterling fell from a seven-year high against the euro on Monday, as the single currency recovered some poise ahead of Thursday's European Central Bank decision on whether and how to launch quantitative easing.

Most in the market now believe the ECB is ready to embark on outright money-printing to stir a moribund eurozone economy, and that leaves the suspicion in place that the euro may already be priced accordingly.

Even before last week's shock to the single currency from Switzerland's removal of the franc cap, IMM data on speculative positioning showed there were just under US$25 billion worth of short bets on further euro weakening.

The euro gained 0.3 per cent against sterling to 76.64 pence per euro. Against the dollar the pound was slightly lower at US$1.5150 amid thin volumes with US markets shut for a holiday.

"Downside risks to sterling will remain ahead of the BoE minutes," said Jameel Ahmad, chief market strategist at FXTM. The BoE minutes will be released on Wednesday, along with UK labour market data.

"The chances are high that the BoE's strong views on weak price pressures would have further strengthened following UK inflation falling to a 12-year low, meaning interest rate expectations are going to be even further pushed back."

Analysts said the minutes could also show if either of the two policymakers in the nine-member monetary policy committee voting for interest rates hikes could stop doing so.

"It will be interesting whether any of those committee members still voting for higher interest rates flip," said Simon Smith, head of research at retail broker FxPro.

"That would highlight the shift towards rates staying lower for longer."

Sterling has suffered from a pushback in expectations for higher BoE rates towards 2016, when just months ago many in the market were expecting a move early this year. "With the rise in risk aversion globally the dollar is likely to stay well bid," Mr Smith said.

"I guess the big question is whether we see US$1.50 on cable before the end of the week."

REUTERS