Sterling set a one-year peak on the struggling euro for the third day running on Wednesday but lost ground to the dollar, with global currency moves and the upcoming Bank of England meeting vying for market attention. The single currency's falls this week helped sustain investor interest in the pound, already boosted by the prospects of further interest rate rises from the Bank of England (BoE). The BoE's Monetary Policy Committee is not expected to hike rates yet when it meets on Thursday, but markets expect tightening in coming months. However, the pound failed to hold ground against the dollar, which staged a sharp rally this week, gaining against all major currencies. "Euro/sterling is still linked to developments in euro/dollar and markets are focusing on a UK rate hike in April or May," said Ian Stannard, currency strategist at BNP Paribas in London. "There is still potential for the downside in euro/sterling, with a move to 66.00 (pence) in the next week or so. It may even break through there," he said.
At 1145 GMT, sterling was up a third of a percent on the day against the euro, having set a one-year high at 66.11 pence per euro earlier. But it shed a quarter of a percent versus the dollar to $1.8349 , after briefly touching a one-month low of $1.8292. Technical analysts said sterling had room to gain more against the euro, but could hit some profit-taking soon. "We are looking for 66.00 (pence) as the big figure now. This is the tough support area (for euro/sterling). Back in February 2003, we had a tough time cracking it," said Gerry Celaya, technical analyst at RedTower Research in Aberdeenshire, Scotland. "Then, the big area is 65.20, which corresponds to the high from June 2002. And 64.70, which is a 50 percent retracement of lows from May 2000 to highs from June 2003." "But at the moment we are looking for a pullback on profit-taking to 66.60 or 66.80," he said.
ECONOMY STILL STRONG
An unexpected fall in Britain's service sector purchasing managers' index for February did not significantly dent the market's rate hike expectations as analysts said the sector remained strong. Fears over a strong pound and fragile recovery in the euro zone overshadowed the best upturn in Britain's new orders in seven years, they said. "Despite the fall, the index continues to indicate strong growth in the services sector, given that it remains well above the 50 expansion/contraction mark," said Jonathan Loynes, analyst at Capital Economics. The latest CIPS/ monthly services index, which covers around 700 companies, fell to 59.5 from 59.8 in January, and was below a consensus estimate of 60. A number above 50 denotes expansion, below 50 contraction. Sterling's trade-weighted index matched recently-set one-year highs on Wednesday, and the pound's prolonged rally is starting to squeeze British firms, according to the survey. Data from Halifax bank showed Britain's house prices rising 1.6 percent last month to stand 17.8 percent higher in the latest three months compared to a year ago.////