Sterling steadied against the dollar on Tuesday ahead of a widely expected interest rate cut from the US Federal Reserve later in the session. The Bank of England cut rates to 5.50 percent last week but analysts and markets expect its easing cycle to be less aggressive than that of the Fed, thus keeping sterling's yield advantage intact, at least versus the dollar.
However, analysts said that with little fresh news, markets were taking their direction from technical levels as much as from fundamentals, as thinning liquidity into the year-end exacerbated the magnitude of such moves.
"Sterling is slightly firmer today. But I'd like to think it's a temporary reprieve for sterling, just waiting for the next batch of softer activity news, particularly in the housing sector," said Chris Turner, head of FX strategy at ING. "Liquidity is falling away very quickly and relatively smaller sized deals probably have a larger impact on the market," he said.
By 1453 GMT, the euro was steady at 71.82 pence. Sterling was also flat against the dollar at $2.0471, off an earlier one-week high of $2.0519. Data on Tuesday showed UK's trade deficit narrowing more than expected in October from September's record high levels. The data gave sterling a small boost, although analysts said it did not alter the broader picture for the economy and rates. Wednesday sees the release of UK jobs data.
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