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Sterling trims Dollar gains, Euro eases

Monday, December 23 15:04:20

Sterling pared early gains against the dollar in thin trade today, as strong consumer spending data from the United States helped the dollar recover.

The pound was steady against the dollar, trading at $1.6344 - off a high for the day of $1.6373 - as some speculators trimmed bullish bets on the pound before the year end.

Data released on Monday by the U.S. Commerce Department showed the largest consumer spending increase in five months in November. Consumer spending accounts for over two-thirds of U.S. economic activity, and has risen for seven straight months.

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 (BoE) 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 future potential sterling gains, analysts said. One way they could curb 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."

The euro was trading 0.1 percent higher on the day at 83.82 pence, not far from a two-week low of 83.335 struck on Friday.