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Poll says Sterling to remain strong

Wednesday, September 05 14:43:49

Sterling is expected to remain broadly firm, interrupted by a dip against the dollar later this year as the Bank of England prepares to print even more money through its quantitative easing programme, a Reuters poll showed today.

Faced with a still-fragile recovery, the Bank of England will beef up its 375 billion pound QE programme with an extra 50 billion pounds of additional bond purchases in November, a Reuters poll predicted last week.

But the outlook for sterling in the meantime remains broadly stable. One pound is seen worth $1.57 in a month, $1.55 in six months and $1.56 in a year, according to the poll of more than 60 analysts taken this week.

However, the range for the 12-month horizon in the poll widened to $1.39-$1.82 from $1.44-$1.78 in last month's survey, suggesting less certainty about where the currency was headed. "We are looking for continued weakness in the UK economy and therefore we think the BoE will be doing more QE. So there are some headwinds coming up for sterling," said Melinda Burgess, strategist at RBS.

Sterling has traded between $1.42 and $1.67 for the last two years but in the recent past it has been much less stable. The pound rose above $2.10 in November 2007 but crashed to $1.35 in January 2009, during the nadir of the global financial crisis.

It was changing hands on Wednesday at around a two-week high of $1.59 after PMI data published on Tuesday suggested the British economy may be improving. The economy contracted 0.5 percent in the second quarter, after shrinking 0.3 percent in the first and 0.3 percent at the end of 2011, marking Britain's second recession in four years. The euro zone economy narrowly escaped recession earlier this year by stagnating in the first quarter but a raft of gloomy data has pushed economists to predict it has also entered a downturn just as Britain is escaping one.

The euro zone is the UK's biggest trading partner and any easing of the sovereign debt crisis is seen as positive for sterling, especially against the safe-haven dollar.

Against the euro sterling will gain some ground, with one euro worth 79.1 pence in one month, 78.2p in six and 78.3p in a year. It was trading at 79.0p earlier today.

Expectations that the European Central Bank will soon take measures to stem the region's crisis have supported the pound. When the ECB meets on Thursday it is widely expected to announce a bond-buying programme aimed at lowering borrowing costs for Spain and Italy.

U.S. Federal Reserve Chairman Ben Bernanke stopped short last week of giving a clear signal that another round of bond purchases was imminent but financial markets have ramped up bets of a further easing of monetary policy at the central bank's Sept. 12-13 meeting. (C ) Reuters