Sterling softens against euro

Sterling was trading near a two-month low against the euro on Wednesday, reflecting growing doubts about whether the UK economy can sustain the solid momentum it has shown in the past few months. The euro was underpinned near recent highs after European Central Bank policymakers appeared to show little concern about its strength.
The common currency was 0.1 percent higher at 85.72 pence having hit 85.85 pence on Tuesday, its strongest since late August. It has gained around 3 percent since hitting a seven-and-a-half month low of 83.325 pence on October 1. Analysts and traders said the euro's break above strong chart resistance at 85.38 pence, the 200-day moving average, meant it may have the potential to rise towards 86.51 pence, its late August high, and the 2013 peak of 88.15 pence.
"Investors are adjusting their expectations of the UK economy. The economic surprise index is having less of an impact on sterling than before," said Marshall Gittler, head of global FX strategy at IronFX Global Ltd. "On the other hand, there were expectations that the ECB will try and talk down the currency. But that hasn't happened as yet. So I think, euro/sterling can head higher from here."
ECB Governing Council member Ewald Nowotny was quoted as saying on Tuesday that there is no reason for the central bank to intervene to weaken the euro, which has gained 8 percent against the dollar since July. Sterling rose against the dollar to $1.6065, having hit a 13-day low of $1.6025 earlier in the session.
While real money buyers like sovereign investors were buying the currency at lower levels, most were on the sidelines before a statement from the Federal Reserve's Federal Open Market Committee policy-setting meeting. The FOMC is widely expected to keep its massive bond-buying programme unchanged when it announces its decision at 1800 GMT.
The dollar dropped after private sector jobs data showed that the US labour market was struggling. This would bolstered expectations that the Fed will keep its liquidity tap open in the near term. "This is uninspiring data that won't help the dollar find support against the euro or sterling," said David Nicholls, a manager at UKForex. Traders said despite the dollar's weakness, the pound was unlikely to overcome resistance at the October 1 high of $1.6260. Recent strong rises in UK house prices, combined with other strong data including a recovery in the jobs market, had led investors to bring forward expectations of when the BoE will raise rates.