Sterling rose against the dollar in volatile trading on Friday after market players interpreted a speech by Federal Reserve Chairman Ben Bernanke as relatively dovish, although he did not explicitly signal more imminent US monetary easing. Bernanke told an annual informal gathering of central bankers at Jackson Hole, Wyoming, that the Fed would act as needed to strengthen the economic recovery.
In choppy trade the pound first pared gains against the dollar, before hitting a session high of $1.5896 as the market digested Bernanke's speech. It was last up 0.5 percent with strong resistance seen at a peak of $1.5912 reached on August 23, its highest since mid-May. If the pound turns negative it would target this week's low of $1.5754 and the 100-day moving average at $1.5742.
"In the last two years of Jackson Hole press conferences in the first few minutes the market always sells off then reassesses. The market has concluded Bernanke was relatively dovish and is now beginning to price in a higher chance of QE (quantitative easing)," said George Saravelos, G10 FX strategist at Deutsche Bank. The euro climbed to a three-week high against sterling of 79.56 pence.
Demand for the euro has been lifted in recent weeks by hopes the European Central Bank will announce clear plans to tackle the euro zone debt crisis at its next policy meeting on September 6. Steve Barrow, head of G10 currency research at Standard bank, said although the long-term outlook for euro/sterling was negative, the single currency could be propped up by ECB action.
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