Sterling flat versus dollar

Sterling retreated from a six-week high versus the dollar on Monday as uncertainty over whether eurozone policymakers would be able to agree on a plan to tackle the region's debt crisis weighed on perceived riskier currencies. The downturn in risk appetite prompted market players to take profits from an earlier rally in the pound. Sterling was last flat on the day at $1.5954, having earlier risen to $1.6001, its highest since September 9.
Traders cited offers above $1.6020 with near-term resistance at $1.6048, the 100-day moving average. On the downside, corporates were seen buying near the session lows around $1.59, just above support around $1.5895, the currency's 50-day moving average.
The pound had gained in early trade along with the euro and global stocks on cautious optimism European leaders would be able to hammer out a solution to the debt crisis over the next few days. At a summit on Sunday, the EU neared an agreement on bank capitalisation and Germany and France came closer to a deal to leverage the euro area's rescue fund.
But final decisions were deferred until a second summit on Wednesday and sharp differences remain over the size of losses private holders of Greek government debt will have to book. "Sterling does look vulnerable, especially against the dollar in the coming days and months. The UK is exposed to the euro area and markets are trading on hope rather than any concrete action from euro zone policymakers," said Raghav Subbarao, currency strategist at Barclays Capital.
"A lot of the good news has already been priced in, so there is a risk of disappointment in the euro and currencies tightly correlated to the euro. Whatever they announce on Wednesday, it is unlikely to translate immediately into policy." Speculators have cut bearish bets against sterling but they are still significantly short on the UK currency and bullish on the safe-haven US dollar.
According to data from the Commodity Futures Trading Commission, speculators were running net short positions of 53,226 in the week to October 18, compared with 61,972 a week earlier. "With the market still quite short, readjustment of positions will drive sterling in the very near term," said a spot trader in London. "But with QE looming, it will be a struggle to rise much and the rally could see more selling."
Many investors see limited upside for sterling in coming months after Bank of England policy committee minutes last week hinted that more quantitative easing may be needed to prop up the UK economy. QE involves flooding the market with pounds and increasing the central bank's balance sheet, a move which is usually bearish for the currency.
The euro was marginally lower at 86.97 pence, having hit an 11-day low of 86.70 pence on Friday. Analysts said as economic fundamentals are soft in both the UK and eurozone, the short-term focus among investors was very much on the outcome of Wednesday's summit. A positive outcome is likely to boost the euro versus the pound. "There is substantial upside risk for euro/sterling but until then everybody is in wait and see mode," said John Hydeskov, chief analyst at Danske Markets.