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Sterling edges up before BOE report

Wednesday, August 13 09:03:12

Sterling edged up in early European trade on Wednesday as investors trimmed bets against the currency before a Bank of England report, which may give clues on when the UK will start to tighten monetary policy.

The euro struggled near recent lows while the yen fell against the dollar, digesting data that showed Japan's economy contracting in the April-June quarter.

Sterling edged up 0.1 percent against the dollar to $1.6825 , pulling away from a two-month low of $1.6757 struck on Tuesday. It also rose against the euro, with the single currency easing by 0.2 percent to trade at 79.38 pence.

The Bank of England's Inflation Report, which will include updated economic forecasts, is likely to provide a fresh steer on the BoE's intentions for rate hikes. The bank has said before that rate hikes, when they happen, will be data driven and gradual.

Wage data - a driver of inflation and an indicator of how much slack remains in the labour market - is due before the Inflation Report and could prove important.

Still, given the pound has fallen in recent weeks and rate hike expectations have more or less remained stagnant, traders said there was a risk that the British currency could rise if the report is hawkish and inflation forecasts are on the higher side.

While the market expects Britain's improving economy will prompt a rate hike in the first quarter of 2015, the euro is being dragged down by recent poor economic data which does not bode well for the euro zone recovery.

The euro eased 0.1 percent against the dollar to$1.3351. On Tuesday, the single currency had dipped to $1.3336 after German analyst and investor morale plunged as the crisis in Ukraine took a toll. That put it within a whisker of a nine-month trough of $1.3333 set last week. (Reuters)

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