LONDON (AFX) - The euro gained further ground against the dollar, hovering above 0.95 usd in midday trade, while sterling gathered some momentum in the run up to the Bank of England's interest rate decision.
The dollar's upsurge over the past two days has begun to wane amid signs that the improvement on U.S stock market may stall, led by Yahoo!'s overnight profit warning, dealers said.
Audrey Childe-Freeman, an economist at CIBC World Markets said: "People are just getting back into the euro as a result of the Yahoo!'s overnight warning. It is a mainly a dollar weakness story."
The prospects of a weaker stock market today and increasing worries about tomorrow's U.S. retail sales figures are beginning to dent the U.S. currency, she added.
Sterling was firmer against most currencies ahead of the Bank of England's rate-setting Monetary Committee Policy interest rate decision.
"We do not expect any change in interest rate by the BoE. On the domestic front, there is no need whatsoever for them to cut the base rates now," said Childe-Freeman.
While the market generally expects 'no change' in monetary policy, some last minutes doubts are keeping sterling's gains in check, dealers said.
Childe-Freeman added that if the BoE decides to keep rates on hold for yet another month, sterling could stand to benefit, especially against the dollar.
The interest rate differential between the UK and the U.S. in the past six months has been a major reason behind the strengthening of the dollar versus the sterling, she observed.
She however added that: "Now this argument does not hold anymore, especially if we see that the BoE does not rush into cutting rates. The interest rate differential may end up playing in favour of sterling versus the dollar."
The yen continued its dismal run, touching 111.37 against the euro, 117.12 against the dollar and 175.25 against the sterling.