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Euro push gives Sterling a break

Monday, April 07 17:25:47

Sterling gained as much as a third of a percent against the dollar today, relieving some of last week's pressure on the British currency thanks mainly to a rise in the euro against the dollar.

The pound's more than 10 percent gain since the middle of last year halted in mid-February, and doubts are creeping in about the durability of a UK recovery that investors had expected to demand higher interest rates early next year.

But Monday's move against the U.S. currency came largely on the back of comments from European Central Bank officials which cooled any immediate prospects of easier monetary policy in the euro zone and bolstered the euro.

Sterling often tracks the single currency higher against the dollar. It was 0.1 percent lower against the euro at 82.75 pence.

"Most of the impetus appears to have come from the ECB speakers rather than anything domestic," said Daragh Maher, a strategist with HSBC in London. "We were quite ready to see sterling head lower today but the euro-dollar moves have changed the equation."

British government bond prices also rose modestly on the day, finishing broadly in line with German debt after the latter recovered earlier losses.

Ten-year gilt yields fell 1 basis point on the day to just under 2.68 percent by 1448 GMT, close to an 11-day low of 2.665 percent hit earlier in the session, while 20- and 30-year gilt yields touched their lowest levels since March 19 .

The gilt's spread over Bunds finished the day little changed from Friday's level of just under 113 basis points, though earlier in the day it narrowed to its tightest since March 25 at 111.0 basis points before widening out again.

The UK sells 1.3 billion pounds ($2.16 billion) of index-linked gilts maturing in 2034 on Tuesday.

A number of major banks have turned more bearish on sterling, some of them also beginning to cite the risks from a referendum on Scottish independence to be held in September.

Some polls show Alex Salmond's nationalists gaining ground in their bid to take Scotland out of the UK, with all the upheaval that would generate - seen by some as at least a short-term risk to the UK economy and financial markets.

"It is just beginning to make it onto the radar screen," said Simon Derrick, a strategist with U.S. bank BNY Mellon in London. "The latest polls make clear that even with all the government and other parties have thrown at the Yes campaign, they are gaining."

Against the dollar, sterling traded 0.2 percent lower at $1.6610 by 1545 GMT. Traders said investors would await a raft of UK data this week before deciding on whether to add to favourable positions or not.

The Bank of England's monetary policy committee (MPC) meets this week but is expected to keep rates steady at record lows.

All three of the closely watched UK surveys of purchasing managers (PMI) were below forecasts last week, although all are still indicative of an economy growing at a robust pace. Industrial and manufacturing data are due on Tuesday while the trade deficit for February is due on Wednesday.