LONDON: Sterling steadied against the euro on Friday, and looked set to hold firm as market players pared back expectations of future asset purchases by the Bank of England.
BoE policymakers voted to keep interest rates and its quantitative easing (QE) programme on hold on Thursday after a run of better-than-expected economic data, a decision that boosted the pound.
Sterling was last trading virtually flat on the day against the euro at 79.70 pence, near Thursday's five-week high of 79.605 pence.
Support for the euro was expected around its 100-day moving average at 79.63 pence and a break through that level could see it target the late September low of 79.23 pence.
Expectations for more QE have been scaled back following better-than-expected UK third-quarter growth data last month.
While UK purchasing managers' surveys this month have been mostly disappointing, suggesting a still bumpy economic recovery, other data has been positive, including trade figures on Friday, showing the trade deficit shrank more than expected in September.
"It's becoming more and more the general consensus that QE could be finished," said Lee McDarby, head of dealing for corporate and institutional treasury at Investec.
"The (economic) figures coming out of the UK are feeling slightly firmer so while that continues we are not going to hear screaming and shouting for QE. That should support the pound."
Strategists at HSBC have said they do not expect any further asset purchases from the BoE and the current total of 375 billion pounds will be the peak.
Quantitative easing involves printing money to stimulate growth and tends to be seen as a negative for a currency as it boosts supply.
Sterling edged down 0.1 percent against the dollar to $1.5963. Market players expected strong technical support around the 100-day moving average at $1.5867.
Some strategists said the pound would benefit more against the euro than the dollar given concerns about a deepening recession in the euro zone, the UK's major trading partner.
Gains against the safe haven US currency could also be limited by worries that the United States may be pushed into recession early next year by a series of tax hikes and spending cuts, dubbed the "fiscal cliff".
"For sterling against the euro it's looking a bit more positive given the fact macro data in the euro zone is showing more deterioration," said Melinda Burgess, FX strategist at RBS.
"But it's going to be hard for sterling to make any significant gains against the dollar while there are worries about the US fiscal cliff looming. Risk-seeking sentiment at the moment is generally not that buoyant”.
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