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Sterling makes more gains on the euro

Tuesday, August 12 16:41:27

Sterling inched up against the euro today after a survey showed investor morale in Germany at its lowest in over 1-1/2 years, a further sign that the euro zone recovery is faltering.

The pound recovered from a two-month low against the dollar hit earlier in the day as investors positioned themselves for the Bank of England's quarterly Inflation Report, due on Wednesday. They will be watching for signs of when interest rates might rise in the UK for the first time since 2007.

Separate data on Wednesday on wage growth - a driver of inflation and a marker of how much slack remains in the labour market - could prove equally important.

A Reuters poll on Tuesday showed economists slightly lifting their bets of a rate rise by the end of the year, though the consensus remains the first quarter of 2015.

That is in sharp contrast to the euro zone, where the key interest rate is currently at an all-time low of 0.15 percent, and where the central bank has kept the option of quantitative easing on the table. The German investor morale survey will add to concerns about the fragile euro zone economy.

"The survey is suggesting weakening growth expectations, and that could mean foreign investors are more inclined to sell euro-dominated risk assets," said Manuel Oliveri, a currency strategist at Credit Agricole.

"So where is (the capital) going to? In our opinion it's going to countries with more constructive growth prospects, like ... the UK. That's why this data is making a case for the euro to go lower against sterling."

The euro weakened to 79.48 pence, down a third of a percent against the pound on the day. (Reuters)

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