Currency Changes - Sterling Recovers

Sterling recovers from 2-1/2 month low vs dlr

* Sterling recovers from earlier 2-1/2 mth low vs dollar

* Thin end-of-year volumes cause choppy trade

* Ongoing UK debt concerns weigh on sterling sentiment
 

By George Matlock

LONDON, Dec 30 (Reuters) - Sterling recovered from multi-month lows on Wednesday, caught up in end-of-year flows and holiday-thinned trading volumes.

Earlier, the pound hit a 2-1/2 month low against the U.S. dollar and a two-month low versus a basket of currencies on Wednesday, weighed down by gloom over the economy and rising public debt.

However, traders said late month-end flows towards the end of the session helped spark a solid recovery in euro/sterling, with extremely thin volumes helping to exaggerate price movements.

Ongoing concerns about Britain's fiscal profile kept downward pressure on sterling after ten-year UK gilt yields rose above those of 10-year Italian BTPs on Tuesday. YLDS5

This year has been challenging for the UK currency. Although sterling has appreciated by around 6 percent against the euro in 2009, this was from a record low point late in 2008.

"Sterling sentiment is struggling for positives at the moment -- any positives are being drowned out by the negatives," said Geoffrey Yu, currency strategist at UBS in London.

By 1523 GMT, sterling was up 0.4 percent at $1.5962 GBP=D4. Earlier it fell as low as $1.5832 -- its lowest level since Oct. 13 according to Reuters charts.

"Yesterday's sharp pullback that broke below $1.5922/03 opens $1.5708 key low next. Resistance is at $1.6068," said UBS in a research note.

The pound recovered from earlier falls against the euro. The single currency traded down 0.8 percent at 89.56 pence EURGBP=D4 having peaked at 90.43 pence this session -- its highest level since Dec. 14.

Trade-weighted sterling =GBP was at 79.3 against a basket of currencies, having earlier fallen to 79.1, its lowest since Oct. 26.

Sterling was hit last week by a disappointing revision to third quarter UK growth figures, and as minutes from the latest Bank of England policy meeting were perceived as leaving the door open to further monetary easing.

A Reuters poll last week showed economists almost unanimous in expecting the BoE to leave its asset-buying programme capped at its current level. [ID:nLAG006010]

A majority of those polled also did not expect the BoE to raise rates until the fourth quarter of 2010 when they see them climbing to one percent.

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Article Reference: uk.reuters .com/article/idUKLDE5BT14120091230?pageNumber=2&virtualBrandChannel=0

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